Jeff Roberts, Scott Chambers and Andrea Tice talk about the recent surge in financial markets

Birmingham, Alabama-based financial guru Jeff Roberts, who was recently named one of the top private wealth advisors in the nation by Barron’s®, came on Yellowhammer Radio to lay out the facts so people can decide for themselves.

The full conversation with Mr. Roberts can be heard on the Yellowhammer Radio podcast or in the video above, and a lightly edited transcript of his interview with Yellowhammer’s Scott Beason can be read below.

Subscribe to the Yellowhammer Radio Podcast on iTunes. Learn more about Jeff Roberts’ private wealth advisory practice at JeffRobertsAndAssociates.com.

Scott:

Listen, we’ve been talking about everything going on in the world and so I have a question for you right now. Can you tell us what happened in the stock market yesterday?

Jeff:

It was kind of an interesting day for sure. since the surprise outcome of the U.S. election two weeks ago where Trump secured the White House the DOW Jones has rallied more than 667 points which is about 3.6% in that two week period of time. Although it took some time, the DOW Jones on Tuesday traded above 19,000 for the first time ever.

Scott:

It was incredible. What does that tell us, Jeff?

Jeff:

In a way not a whole lot. It’s always good when markets go up but the DOW by itself is not necessarily the end all be all. Quite frankly the DOW, a lot of people don’t realize this, is only comprised of 30 stocks. It’s not necessarily the best barometer compared to other ones like the S&P 500 which is 500 of the largest companies in the market. In the DOW Jones breaking 19,000 is wonderful but if we really put it into perspective it went from 18,000 on the DOW to 19,000 on the DOW which is about a 5.5% jump. But it took over 483 trading days to do that. When it first broke through 18,000 on the DOW it was the 23rd of December 2014. So it only jumped up 5.5% roughly in almost two years to finally get to 19,000. So, although it’s good to get there it’s about time.

Scott:

Do we know what is causing these equity markets to surge?

Jeff:

Good question. Speculation is always kind of at hand when we’re talking about what drives the market. If we step back a little bit and we try and figure out what is really doing it, there’s probably a fair amount of an argument that can be said that with the election of Donald Trump there is a tremendous amount of cheer going on with the idea of infrastructure spending that is likely because of his administration, what they’ve been talking about. They’ve been talking about renegotiating global trade deals and they draw down on regulations in general. So the rhetoric and themes coming out of the Trump Administration could very easily be contributing to a rally in the markets. There’s a good chance due to the Trump Administration that there could be significant fiscal stimulus including tax cuts, potentially tax reform and as I mentioned infrastructure spending which could boost growth. So those are some things that can be causing that and if you peel away the onion even further from just the political side and you concentrate on just what’s been happening in the overall economy, GDP, Gross Domestic Product, real GDP in the third quarter was announced to grow at about 2.9% in the third quarter. That’s an annualized result. That’s the advanced estimate released by the Bureau of Economic Analysis. 2.9 is a strong number and higher than it was substantially than previous quarters. Corporate earnings in the market are up here in the third quarter. So when you look at corporate earnings, you’ve got GDP growth in the economy plus the positive election results that indicate possible pro-business, pro-growth administration. Those all speak to possibly a nice rally in the market that we’ve seen.

Andrea:

Hey Jeff, sorry to interrupt there but this is Andrea and I just wanted to ask you a question. Weigh in on this, do you see any cause for problems in the momentum we’re seeing right now?

Jeff:

It’s a great question because when you think about what we’ve seen in just a very short period of time the markets jump up from 18,000 where it was literally just over a month ago and it jumps up over 5% points in a very short period of time. When it first time broke 18,000 it was almost two years ago, you see that short term volatility pretty quick. It can go in the opposite direction just as quick. So for example hypothetically, if Trump were to come out and say, ‘You know what, I’m not going to try and unwind or undo Dodd Frank”. Or the GDP regulators push back and don’t want to deregulate so we start seeing some things on the political side. Financial stocks could drop or if certain political promises aren’t delivered on. If Trump comes out and says, ‘Well the Affordable Healthcare Act maybe fine the way it is and we’re going to leave it alone”, healthcare stocks could be impacted by that. The things that have been driving some of the euphoric performance in the short-term could turn on a dime if some political promises unwind and go in the wrong direction.

Scott:

You’re really good at putting this stuff into perspective. At the end of the day what should we be thinking right now?

Jeff:

Thank you. The point there is just this, keep this as information but it is not something that drives tremendous change in somebody’s portfolio and keep that perspective. Because the DOW and the S&P have just recently rallied and have done well. In fact all indexes, the DOW, S&P, Nasdaq, and Russell 2000 all reached an all time high simultaneously and that hasn’t happened since December of 1999. But there are other sectors of the market that are not performing well. Just since the Trump election the DOW is up 3.7 but municipal bonds are down 2.9 in that period of time. Merging markets are down 4% during that period of time. The bond index is down 2% during that period of time. Where financial stocks are up twice as much as the DOW so you see this wild fluctuation in different areas of the market whether it be bonds or stocks and in this particular case what makes the news the most is the DOW Jones. Keep in perspective that it’s just business as usual. Some markets are moving forward, some are not. Interestingly the bond market has kind of taken a bit of a tumble in this period of time where the tenure treasury interest rate has jumped up almost 22% just since the election which has caused bond prices to go down. So if we take just the perspective real quick on the stock market year to date and the bond market year to date. From January 1 to yesterday the S&P 500’s largest stocks is up about 7.75% for the year. The bond index is only up .5%. So let’s say you’re retired and you have a have half your money in stocks and you have half of your money in bonds evidenced by those two indexes. Well half your money is up 7 and half your money is up .5, your average return on your portfolio is only 4.1, ballpark. But if you’re seeing it as, ‘Hey the market is up 7%’, people think, ‘Well I should be up by 7’. Well not if you have an overall diversified portfolio. Keep in mind that markets move independently at times and sometimes things are up and sometimes things are down and you don’t need to worry about short-term volatility and even though the DOW is making some good news it could be down 1,000 points tomorrow.

Andrea:

Thank you Jeff for sharing and helping people get a perspective so they’re not full of anxiety. They’ve got a better context for evaluating this. Do you have any closing thoughts before you head off to grab that turkey?

Jeff:

Overall it is always exciting to see markets moving in a positive direction and we love seeing the DOW hitting 19 and look forward to days hopefully where it goes up to 20 and more. When people generally have questions on these types of things let us know. We would love to help them at JeffRobertsandAssociates.com. Give us a buzz and we’re happy to sit down and talk anytime with folks.