Post-Election: Exuberance In Stocks, Carnage In Bonds And An Unknown For Real Estate!

By | December 11, 2016
Ten-year Treasury Bond Yield chart

10-year Treasury Bond Yield chart

Depending on your perspective as an investor in stocks, bonds or real estate, the post-election action in the financial markets has either been phenomenally great or dismally destructive!

Of course if your portfolio is well diversified as the experts suggest that it should be, then that makes for an entirely different story altogether.

Bond Market Investors: A Tale Of Two Styles!

What investors in bonds have found is that the value of their holdings have gone down as yields in the bond market have gone up. This is not a big deal if they hold securities to maturity and, in fact, could be a positive if they invest the proceeds from maturing bonds into a higher yielding market.

On-the-other-hand, investors in bond funds will be in for a very different type of sticker shock as these open-end vehicles (closed-end funds are similar) do not have a ‘maturity’ and, as yields rise, the value of shares drop. The difference between these funds and individual bonds is that if yields stay-up or continue to rise then share value will continue to drop.

And according to Fixed Income 101, the longer the maturity of the underlying portfolio of bonds (or duration) the greater the volatility experienced and the larger the decrease in price as yields rise (of course the opposite is true as well). So will Janet Yellen raise the Fed Funds rate this month? Will economic growth under the new administration pick-up and inflation rise beyond the Fed target rate mandating further interest rate moves by the Federal Reserve? Stay tuned!

30-year Treasury Bond Yield chart

30-year Treasury Bond Yield chart

30-Year Treasury Bond Price Move

30-Year Treasury Bond Prices

The Stock Market Post-Election!

Then there’s the stock market! Investors in this sector of the financial markets have witnessed an enormous move-up since Donald Trump won the election and became President-Elect. Is this spike attributable to the fact that investors are sensing that economic growth will expand and earnings will rise along with the expected decline in the tax rate for business and pull-back in the regulations imposed over the past 8 years? Is it one of the greatest short squeezes of all-time? Is it sustainable? We will all just have to wait and see!

S&P 500 Index Chart

S&P 500 Index Chart

Real Estate And Mortgage Rates!

And now for real estate! As the owner of a title insurance company and therefore an interested observer, it appears that the inventory of property for sale has risen dramatically and that the timeframe to sell has lengthened. One need only remember that it was the lack of inventory and extremely low mortgage rates in many markets that helped drive price appreciation, so will the reverse throw a money wrench into the works? Or, if economic growth of 4% and rising incomes come to fruition over the Trump years, then will real estate continue to thrive. Much like all of the other investment classes, what we have here is a classic wait and see!

30 year mortgage rate chart

30-year Mortgage Rates

Michael Haltman is President of Hallmark Abstract Service in New York and Board Chair of Heroes To Heroes Foundation.

He can be reached at mhaltman@hallmarkabstractllc.com or at 516.741.4723.

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