‘Time to put money under your mattress or go all in?

Things are changing this January and changing fast: A new President and Congress; bundles of new executive orders and the repeal of executive orders; and many new faces in Washington. It feels like we are drinking from a firehose in terms of change right now. 

What does this mean? 

Should you be scared or is it an opportunity of a lifetime? 

We shall see. 

No one likes change

As humans we are hardwired to seek safety, security and certainty. Back in the ‘hunter-gatherer days’ our survival depended on fending off lethal predators and finding enough food to survive. Recognizing the benefits and efficiencies of a collective, humans began to organize themselves into tribes which were more formidable to predators than single individuals trying to sustain themselves. This led to systems: males typically hunted for food while females managed the home and childrearing. Stability to these systems helped them have a better chance of avoiding starvation or death, which were real threats. 

When we see a lot of change, the natural reaction is to hunker down, pull back and protect what you have. Some investors are feeling that way right now. But I believe these fears are misplaced. Concerns over the new policies in Washington should not be associated with a poor outlook for investing. 

Things haven’t changed much 

As investors, we seek attractive returns year after year. While some may go for the long-shot investment with a big payoff, all it takes is one big loss for an investor to rethink their strategy. The stock market is a reflection of the expectations of investors. When those future returns are in question or the original reasons for investing in stocks go away, stock prices often fall. 

Earlier this week we saw a big drop in stock prices with a few stocks dropping by record amounts reflecting the entry of a new, lower cost artificial intelligence tool from China. 

While concerning to US AI companies, the decline had nothing to do with the new Administration and Congress. Yet a big event like this can lead investors to believe that the whole world is headed in the wrong direction. 

With stock valuations hitting record highs in December, some investors had also been worrying that stocks would be due for a pullback. 

Well, it happened. 

It will take some time to determine if this is a permanent decline or a short term set back in a long upward accent for AI-related stocks. 

Importantly, this had little to do with the new Administration as they are just beginning their terms in office. It had more to do with uncertainty about high priced AI-related stocks. 

I do think that AI will bring many benefits. It promises to save time, simplify tasks, and lower costs—all trademarks of new innovation. 

Politics do not equal the markets—still

With this recent exception, the US stock market has been pretty happy. We’ve had two great years for stocks and the economic and business climate for 2025 continues to look positive. 

That said some investors are concerned about all of the changes put forward by the new Administration and they are wrongly associating their concerns with financial ruin. 

One needs to remember stocks are largely unaffected by government policy. Most changes are indirect and will take years before they become evident in the economy. And, even if they show up, they may not be significant.¹ 

Taxes

However, there are a few policies, such as cutting corporate tax rates, which can have a fairly immediate and significant impact on corporate profitability. These benefits do tend to flow through quickly to stock prices. 

We’ll see what the new Congress gets done in 2025. Given the small majorities in both the House and Senate as well as the many demands on the federal budget, it remains to be seen if a corporate tax cut will be passed this year. 

As with all investments, prices can sometimes rise too high or too quickly. When prices fall, while painful in the short term, lower prices can provide a reset to expectations and a more solid base from which to grow. 

If you are concerned about the stock market right now, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE. 

Lyman H. Jackson

Lyman@PlanWithFPS.com

617-653-3303

¹There have been a number of studies showing the performance of the stock market under both Republican and Democratic administrations. While each party likes to claim that their policies are best for the economy and investors, the US stock returns show that there is no material difference.

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©2024 by Financial Planning Solutions, LLC (FPS), a Registered Investment Advisor. Reprinting or redistribution only by permission. This blog was written by a professional with 30 years’ of real world experience in finance. AI did not write this article. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.