David I. Templeton

About the Author David I. Templeton

HORAN Capital Advisors (http://www.horancapitaladvisors.com) is an SEC registered investment advisor that manages investment portfolios for individuals and institutions. Our firm utilizes a disciplined investing approach that should create wealth for our clients over time. Our investment bias is to invest in companies that generate a steady return over time, i.e., singles and doubles. This singles and doubles approach tends to lead to investments in higher quality dividend growth/cash flow growth companies. On the other hand, there are times when a company's stock price seems to be trading below its fair valuation. Short term gains are possible in these situations. I have been managing investment portfolios for individuals and institutions for over fifteen years and believe investing is like running a marathon and not a sprint. Taking the road less traveled, more often than not, leads to higher returns. Visit: The Blog of HORAN Capital Advisors at (http://disciplinedinvesting.blogspot.com/)

Buy the Rumor, Sell the News

By Matt Woebkenberg

The old investing adage “Buy the rumor, sell the news” comes to mind following the “Trump Rally” to end 2016. As we all know, President-Elect Trump has not yet been sworn into office and yet, the year-end climb in US markets has been mostly attributed to his policy proposals. This makes sense as the market is always forward-looking, but it is important to keep in mind that it often overshoots in the near term.

As a prime example, the chart below shows the relative performance of the Utilities sector against the S&P 500 in the three months before (left) and after (right) the two most recent Fed rate hikes. The line moving higher indicates Utilities outperforming the S&P 500 and lower indicates Utilities underperforming.

Any market participant would tell you that this conservative/high income sector should suffer from an increase in interest rates- and it did. Yet, all all of the underperformance came before the actual event (Fed rate hike) and subsequently, Utilities dramatically outperformed (short-term).

The surprise victory of Donald Trump in the Presidential election brought about a dramatic market rotation that benefited cyclical sectors like Financials and Industrials. Cyclical sectors outperformed due to the widespread belief that Trump’s pro-business policies could boost domestic economic growth.

This rotation may prove to be wise and Trump’s policies may boost the U.S. economy, but in the near term, we would not be surprised to see some of this rotation temporarily undone. The market has been driven higher by policy speculation; actual legislation may prove the wisdom of “Buy the rumor, sell the news.”