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BUSINESS GUARDIAN guardian.co.tt MARCH 9 • 2017
The bump isn't
The stock market is hitting new
heights, and yes, excitement
about President Trump's pol-
icies is part of the reason for
it. But it's not the only one,
Even if Donald Trump had lost the election,
many professional investors and analysts say
they still would have expected stocks to rise,
just perhaps not to the same degree.
The Standard & Poor's index has leapt 11.3
percent since Election Day, packing more gains
into four months than it's had in four of the last
six full years. It dipped a bit Thursday, but it's
still close to its record set a day earlier.
Here's a look at some of the factors behind
the strong run for stocks:
The Trump bump
The first reaction for markets to Trump's win
of the White House was confusion. Many in-
vestors had been expecting a victory for Hillary
Clinton, and markets around the world tum-
bled on election night as the result became
apparent. But they reversed course within
hours. The reason: Investors are expecting
the Trump White House to push through tax
cuts for businesses and to loosen regulations
Lower tax bills for companies should lead to
an immediate rise in earnings, and stock prices
tend to track profits over the long term. Easier
regulations should also help businesses, the
thinking goes, particularly big banks and other
financials that have been under restrictions
imposed following the financial crisis.
Financial stocks have been the best-per-
forming sector by far of the 11 that make up
the S&P 500 since the election. Besides the
hope for looser regulations, analysts are also
excited about the prospect for bigger profits
given recent gains in interest rates, which will
make lending money more profitable.
Economy is getting better
Growth has been frustratingly slow since the
end of the Great Recession, but the job market
is picking up steam. The unemployment rate
in January was 4.8 percent, and economists
see the economy as close to full employment.
A report on Thursday showed that the fewest
number of workers applied for unemployment
benefits last week since Richard Nixon was in
the White House.
Improvement was underway before Trump
entered the White House, but his election has
spurred things along.
Optimism among small businesses, for ex-
ample, spiked higher after the election and is
now at its highest level since 2004, according
to surveys from the National Federation of In-
Confidence also jumped for regular house-
holds following the election, and consumer
confidence is at its highest level since the
summer of 2001. If that translates into more
purchases at stores and elsewhere, it should
drive even more economic growth.
Other economies around the world are also
improving, raising expectations for profits of
big US companies, which do a lot of their busi-
Higher confidence all around
Confidence has spread even to regular in-
After years of hiding out in bonds and oth-
er safer investments, retail investors began
creeping back into stock mutual funds and
exchange-traded funds following the election.
Investors plugged $20.7 billion into U.S. stock
funds in November, the biggest month in nearly
two years. They've followed that up with more
purchases. That buying has helped to bid up
stocks even more.
are getting better
Big businesses are finally earning bigger
Earnings per share for companies in the S&P
500 were nearly six per cent higher last quar-
ter than a year earlier, with nearly all of the
companies reporting, according to S&P Global
Market Intelligence. It's a sharp turnaround
from a year ago, when low oil prices and oth-
er factors were pulling down profits for S&P
500 companies. Profit growth was particularly
strong for technology and financial companies.
Microsoft's earnings rose on stronger sales of
business software, for example, and invest-
ment banks reported a strong quarter for their
But just as each of these pillars has helped
to lift stocks in recent months, a weakening
of any of them could remove some support.
If tax cuts come later than expected, or if they
end up being only minor ones, it could mean
a drop for stocks.
Critics also worry that that stock prices have
run up at a time when they were already looking
overpriced relative to their earnings. One pop-
ular way to measure whether the stock market
is expensive or not is to compare the S&P 500's
level against its earnings over the prior 10 years,
adjusted for inflation. By that measure, which
was popularized by Nobel-winning economist
Robert Shiller, the S&P 500 is close to its most
expensive level since the dot-com bubble was
deflating in 2002.
AP's Stan Choe
What's driving the stock rally
What to look for in your fund investments, beyond low fees
Fees are the first thing that investors should con-
sider when looking at a fund investment, and
the financial industry has been tripping over
itself to cut expenses ever lower. But expenses
are hardly the only thing to consider.
Keeping expenses low has been in the spot-
light, mostly because it's proven to be one of the best and easiest
ways to help your savings grow. A fund with low fees has an
automatic head start over higher-cost rivals for returns, and
compounded over years the advantage can grow even more
powerful. Mindful of this, investors are pouring their money
into lower-cost mutual funds and exchange-traded funds.
The industry has taken notice, and is racing to cut expenses
to draw in increasingly cost-conscious customers. Charles
Schwab's mutual fund that tracks the S&P 500 index charges
US$3 in fees annually for every US$10,000 invested, down
from US$9, effective Wednesday, for example. A decade ago,
investors across all stock mutual funds were paying US$86
of every US$10,000.
With research stacked up to show that having low expenses is
one of the best predictors for future performance, it's tempting
to sort a list of funds by expenses and simply pick the cheapest
one. But that may not provide the best fit.
Here are some other points to consider:
What index does the fund
compare itself against?
Two index funds with similar names and similar expens-
es should be similar, right? Not if they're tracking different
Todd Rosenbluth, head of mutual fund and ETF research at
CFRA Research, points to two that invest in stocks from devel-
oping economies as an example. Vanguard's FTSE Emerging
Markets ETF and the iShares Core MSCI Emerging Markets
ETF charge an identical amount in fees: US$14 annually of
every US$10,000 invested.
But their performance has not been identical. In 2014, Van-
guard's ETF was virtually flat, while the iShares ETF lost 3.4
per cent. So far this year, the iShares fund has returned a bit
more, at 10.3 per cent versus 9.9 per cent, as of Wednesday.
One reason for the difference: all those curved-edge mobile
phones people are using. The iShares fund counts Samsung
Electronics as its biggest investment, part of the nearly 15 per-
cent of its portfolio that it allocates to South Korean compa-
nies. The Vanguard fund, meanwhile, has no South Korean
stocks because the index that it tracks considers the country
a developed market, not an emerging one.
Vanguard's ETF also includes Chinese stocks that trade in
Shanghai and Shenzhen, known as A-shares, which have long
been difficult for foreign investors to access. The index that
the iShares ETF tracks doesn't include these stocks, which
some investors say offer more direct access to China's growing
consumer economy but are prone to bigger swings in price.
How much freedom does the
Fidelity's Total Bond fund and American Funds' Bond Fund
of America are both among the biggest fixed-income funds,
and both focus on intermediate-term bonds with similar ma-
turities. Both are also actively managed funds, which means
they compare themselves to benchmark indexes but don't
But investors who invest in the Fidelity fund should be willing
to potentially take on more risk than those in the American
Funds offering. That's because the Fidelity fund can put up to
20 per cent of its investments in junk bonds, which offer some
of the highest yields but are issued by companies with weak
credit ratings. The American Funds offering, meanwhile, typi-
cally caps its potential investment in junk bonds at 10 per cent.
Bond funds also allow their managers to put varying amounts
of their investments abroad, including emerging markets.
American Funds' Bond Fund of America can put up to a quarter
of its assets outside the United States, for example.
How popular is the ETF?
Besides price, investors should check to see how actively
traded an ETF is. Ones that are small and trade infrequently
can have wide gaps in price between what sellers and buyers
Funds that are larger in terms of assets are also less likely to
be in danger of shutting down. ETFs are wildly popular, and
more are opening every day, but many also close when their
popularity wanes. BlackRock's iShares, for example, shut ones
that focused on foreign inflation-linked bonds and on Latin
American stocks last year, among others. AP's Stan Choe
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