Investors know that bonds, whether taxable or tax-free, are considered as low-risk portfolio staples designed to provide stability and income.
But most bonds took a big hit after the elections, with yields shooting up and prices down.
That’s because many investors concluded that a Trump presidency will mean bigger government spending on infrastructure and other projects. That could unleash more inflation, the mortal enemy of bonds.
Our take is that it’s far too early to know the details of policies the Trump White House will pursue. Interest rates are undoubtedly heading up, but we already knew that before the elections. There’s not a lot of truly new information, and certainly not enough to justify the price changes in bonds. We think investors have overshot the target, based on speculation rather than hard facts.
So while we’re carefully analyzing proposals for tax and spending policies, and will brief clients on what they might mean, we’re holding off on major reallocations until the dust settles.
We’ve learned from experience that it’s never wise to follow the herd, and believe that better trading opportunities (both to buy and sell) will appear with time as the new Administration takes shape.