The Effect Trump Rioters had on Your Stock Portfolio

By now, everyone has seen the shocking images of rioters storming the capitol building yesterday, January 6, 2021.

Americans invested in the stock market have many worries and questions about why the market is doing so well in a time of chaos.

From the surprise victory of the Democrats in the Georgia Senate races, to record high COVID cases maxing out hospital capacity, to yesterday's surreal assault on Congress, what the heck is going on?

To understand how all of these separate but intertwined events affect the stock market, we must first discuss what the stock market isn't, and what the stock market is.

The stock market is not a political poll. It does not measure confidence in American health or well being. And it certainly doesn't measure the satisfaction Americans feel about the electoral process.

So we just realized what the stock market is not. So what is the stock market? The community of over 10 million investors decide as a herd what lies ahead for the economy and corporate profits. Aka: Confidence

With vaccines rolling out to almost all 50 states and consumers itching to spend money, the pandemic seems to be receding in the eyes of many Americans and investors alike. The economy has rebounded, and the outlook looks hopeful.

But don't be confused. The stock market's performance is largely dependent on where investors see the economy in six to nine months from now, not six to nine years.

Currently, there are historically low-interest rates and ultra-cheap energy costs. These two factors alone account for dramatic increases in corporate profits.

Share price almost always follows earnings reports. In this regard, the rally of the stock market makes sense.

It's a little funny when my conservative friends ask me, "But what about the Democratic takeover of the house, senate, and presidency... won't investor confidence go down the drain?" If you are an avid reader when it comes to my articles, you will remember the article I wrote in November discussing the celebration investors had when a divided government was called by all the news outlets. But one prominent downside of a split government is watching our elected representatives walk in circles.

Americans need a stimulus check to support their struggling households. Although Republicans might be upset with the Democrat's stimulus package, it is arguably more important for a stimulus bill to pass instead of a constant fight over Republican and Democratic ideology. With a unified government, our gridlock problem is off the table.

Everything I have recently read about the stock market leads me to one conclusion and one conclusion only. The market will be positive in the short-term but negative in the long-term. And I will explain why...

The stock market shows positive returns now because trillions of dollars in additional federal spending have rippled through the economy, which boosts consumer and business spending and ultimately increases corporate profits.

In the long-term, this is negative because when interest rates begin to stabilize, the cost of servicing all of this newly added debt will tremendously weigh on the economy. Not to mention the added stress on capital markets and our sovereign debt rating.

The short: The stock market is pricing in at the party phase, not the hangover phase.

So while 2021 will almost certainly be a better year for middle-class Americans' economic prosperity, it is wise to continue to favor low-risk, high return opportunities.

Good investing,

Dan Sarver