Trump Wins. Stocks Explode Higher! What next?

$NASDAQ 100(NDX)$ $NYSE(NYSE)$ $SPDR S&P 500 ETF Trust(SPY)$

Taking a quick look, the Dow Jones futures are up 900 points, S&P futures up 107 points, and NASDAQ futures up 322 points. My portfolio is reflecting this: it’s up $35,000 on one portfolio and another $10,000 on another. And with the markets not even open yet, we can expect even further jumps.

Now, if you're a Democrat and feeling down about Trump’s win, don’t worry. Historically, the stock market performs well regardless of who’s president. Markets rally as soon as there's certainty on leadership, as people reinvest. If trends continue, we might see this rally extend through year-end, pushing the S&P 500 beyond the current 21% increase year-to-date.

As for changes to my investment strategy? None, really. I don’t let macro or political factors dictate my portfolio choices. My focus is on whether each stock represents a strong, undervalued business. I might make predictions for fun, but I invest based on individual stocks, holding or adding shares as long as they offer good value.

For instance, with Palantir, some have wondered if they should sell now that it’s jumped to $51. My advice is to consider your portfolio's allocation—if Palantir is heavily weighted, it might be worth trimming. Currently PLTR is around 79% overvalued.

With a Trump administration, some sectors might benefit more than others, although this isn't guaranteed. The energy sector could see gains due to Republican deregulation, especially for companies like Exxon, Chevron, and ConocoPhillips. Personally, I don’t invest in energy stocks long-term because of their volatility, but I do occasionally swing trade them.

Big banks and defense contractors might also gain. Republicans tend to reduce banking regulations, which can benefit firms like JPMorgan and Wells Fargo, while increased military spending could boost companies like Lockheed Martin. Manufacturing and infrastructure stocks may see gains, and even biotech might benefit if tax cuts and grants are implemented, which could also help companies involved in clinical trials, such as Medpace.

Domestic small-cap stocks could gain as well, especially with the tariff policies Trump has proposed, although these tariffs could also spark inflation by raising the prices of imported goods. Tariffs, along with potential deportations, might drive up costs, especially for labor, impacting sectors that rely on affordable labor.

If inflation reignites, there’s a risk of higher interest rates. Higher yields could increase borrowing costs, affecting companies with debt-heavy balance sheets, like infrastructure and real estate. The Fed might even consider raising rates again, which could spell trouble for the market.

To hedge against these risks, I’m focused on high-quality, inflation-resistant stocks with pricing power and low debt, particularly in the tech sector. Companies like Amazon, Meta, Adobe, Microsoft, Salesforce, and Nvidia have these characteristics, making them more resilient against inflation and rate hikes. They have strong cash positions, which allows them to earn interest income if rates increase without incurring higher debt costs.

Ultimately, we can’t predict the future, but by focusing on strong companies that can thrive in any market, we’re prepared for whatever comes next. Now that the election is settled, let's focus on building wealth together.

Limited Presidential Impact on Core Fundamentals: While politics can drive short-term market changes, the deeper economic fundamentals—especially for long-term investors—stay largely unchanged regardless of who’s in office. Structural factors like the rising national debt and budget deficits are unlikely to be significantly altered by any one administration.

National Debt and Economic Constraints: The national debt, projected to reach 131% of GDP by 2034, highlights a long-term fiscal challenge. As debt grows, so does the cost of interest payments, which limits the government’s flexibility in addressing future issues.

Short-Term Market Moves vs. Long-Term Investment Strategy: Quick trades might yield profits in response to political or economic events, but a long-term investor should focus on core fundamentals and seek to invest with a “margin of safety” to guard against risks.

Entitlement Spending and Demographic Pressure: Spending on entitlements like Social Security and healthcare is expected to rise as a share of GDP due to an aging population. Policymakers will likely face tough decisions: reform now or make more drastic adjustments later.

Economic Cycles and the Need for Realignment: History shows that prolonged debt cycles eventually reset, often through economic pain. While the 2009 financial crisis was managed by taking on more debt, today’s even higher debt levels make future adjustments increasingly necessary.

The Influence of Populism on Policy: Politicians typically favor short-term fixes, as these are more appealing to voters than making difficult choices that would benefit the long term.

Sticking to Value Investing Fundamentals: No matter the economic or political changes, value investing remains resilient. Buying strong assets at a margin of safety is a dependable approach, even in uncertain times.

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