Investors who watched stocks and bond yields surge after Tuesday's U.S. presidential election may be wondering what exactly to do next with their portfolios.
One lesson from market strategists might put things in perspective: Don't necessarily bet on any sector based on who is headed to the White House.
This was one theme among others that emerged in ThinkAdvisor discussions with market VIPs this week following Donald Trump's election victory.
Liz Ann Sonders
Liz Ann Sonders, chief investment strategist at Charles Schwab, said in an interview Thursday that she was surprised by how quickly the results arrived and suggested that a rally may have happened if Kamala Harris had won as well without a lengthy wait.
There's no way to know, but "I think that we might have been poised for a rally under either result with a result being called the next morning," she said.
Sonders cautioned against making immediate assumptions about which industries will benefit under a Trump administration.
"There is peril in long-term extrapolation of some of the narratives that occur in the immediate aftermath of an election result," she said, also noting "so many uncertainties" in the market now. "It's sort of foolhardy to do extrapolation."
Immediately after Trump's win in 2016, the market expected him to produce a boom for the energy sector, Sonders noted.
The S&P 500 energy sector comprises only traditional energy companies, no renewables, "and they surged in the immediate aftermath" of the 2016 election, Sonders recalled.
"But from Inauguration Day to Inauguration Day under the Trump administration, the energy sector was the single worst-performing sector by a massive margin. It was down 40%, and the next worst sector was up 20%," she said.
"Well, fast forward to the Biden administration, seen as anti-traditional energy, and the narratives in 2020 when he got elected were, 'Boy, this is going to be great for green energy companies. Terrible for traditional energy,'" Sonders added.
From Joe Biden's inauguration to last week's close, "the energy sector is the best-performing sector, the only one that has more than doubled, and well better than even technology," she said.
Many stocks that surged in the immediate aftermath of Trump winning in 2016 also surged Wednesday, she noted.
"But interestingly, if you were to look at the so-called losers baskets of stocks over the subsequent year after the 2016 election, the loser stocks, meaning those stocks perceived to not benefit from Trump's policies, did more than two times better than the winners," Sonders added.
"It's just another example of the caution around extrapolating and the real point being there are so many other forces that impact what the market does, what individual sectors do, what groups of stocks do," she said.
"Because we're all in the throes of the election, there's too much extrapolating that happens in terms of, 'What's this good for? What's this bad for?'" the market strategist noted.
Market action Wednesday was odd "because the narrative around bond yields surging was tariffs and inflation. Yet the narrative around the equity market surging was 'lower regulation and lower taxes good.' Those two don't really coexist," Sonders said.
As for what investors should prepare for, Sonders suggests that equity markets may see less volatility overall but more frequent spikes.
Schwab continues to expect sharper rotations in short-term market leadership, a trend that kicked in mid-summer with a give-back in the Magnificent 7 and an initial shift to interest-sensitive areas when the Federal Reserve started telegraphing easier monetary policy, she noted.
It's easy to assume that sharp rotations continue, "with drivers now being around things like tariff policy," Sonders said.
With rising bond yields, Schwab's chief fixed-income strategist, Kathy Jones, has indicated that she may need to rethink her outlook, Sonders noted, adding that fixed income portfolios might require more customization depending on whether the account is taxable and whether it's for diversification or income-generation purposes.
