My thoughts:
–this only really matters if you’ve shaped a portfolio that’s extremely sensitive to minor market movements, or you think that your edge over other investors in the market is your ability to call this kind of move correctly–and, of course, you’ve presumably thought out the tax implications of this kind of trading
–experience shows that even the best professional money managers in the US, which is pretty much the All Star game for the profession, have lots of trouble outperforming an index fund.
This is a two-edged sword. Yes, active management is a lot harder than it looks from the outside but if pros as a group are net losers, the rest of us must be net winners. I don’t have a great explanation for why is the case, but I think it has to be so. Maybe we have smaller portfolios that we can make dance in a way that’s impossible for elephantine professional portfolios.
–according to the Trump-crafted Bureau of Labor Statistics, the country has lost about half a million jobs since the inauguration–much of that from firings of federal government employees. Arguably, the number the Biden administration would have published is significantly bigger. Also, the USD has also declined by about 15% over the past year, meaning the world value of US GDP is about $30 trillion less today than a year ago. …and the US stock market has been the worst-performing major stock market in the world over this time span.
On the surface, this isn’t the stuff that “trees don’t grow to the sky” usually applies to. To me, it’s more like “you can’t fall off the floor.”
–Still, I think there’s a reasonable argument that the AI-related stocks in the US are, as their performance over the past months illustrates, relatively fully priced. For holders with a long investment horizon, this may not matter too much. The traditional move for more aggressive US investors would be to rotate either into Consumer discretionary names with strong growth prospects, or into asset-rich, somewhat duller names, on the value idea that they can’t go down much and are potential takeover targets.
On the other hand, GDP growth doesn’t appear to be a high priority for Washington right now. ICE killings haven’t done much good for the US brand name. And efforts to thwart investigation of the (shockingly widespread) Epstein sex trafficking network have given the country another unneeded black eye. So I find it hard to see substantial movement into domestic-oriented US stocks, even though I’ve done a little of this already.
My guess is that, ex special situations, the bigger move will be to markets outside the US. My favorite here would be reaching into China through Hong Kong. Around 25% of my actively managed equity money (the large majority of my equity is in index funds) is there already–with mixed results so far.
All in all, I think that if today’s US stock market followed the pattern I’ve seen domestically over the past 40+ years, a correction would be on the cards. But I think that Washington (I include Congress here, too) has done a large amount of damage to the domestic economy in a short period of time. So my guess is there won’t be much rotation into purely domestic names. Money will go abroad instead.