In this segment from Market Foolery, Mac Greer, David Kretzmann, and Matt Argersinger consider the bullish market that has developed in response to President Trump's optimistic policy proposals. Since election day, major indexes have all gained at least 10%.
But investors should dial back the enthusiasm, according to the team. Only a fraction of what is suggested by politicians ever becomes reality, which leads us to a broader question: With the market on a tear since November, are we approaching another bubble? Some respected investors are still buying stocks selectively.
A full transcript follows the video.
This podcast was recorded on March 1, 2016.
Mac Greer: Guys, let's begin with what's being called the Trump rally. The market opening up big on Wednesday after President Trump's address to Congress on Tuesday. Matt, the stock market keeps hitting new highs, we have talked of corporate tax reform, free and fair trade, big increases in defense and infrastructure spending, we have healthcare talk about reform and repeal and replace. What does it all mean for investors?
Matt Argersinger: Well, it's all stuff investors should love. I'm keying in on, mainly, the $1 trillion public and private infrastructure spending, which, I think, realistic or not, that could boost a lot of spending, bring a lot of cash out into the market into corporation coffers. We love to hear this, and as investors, it's really exciting. We have to really dial back our enthusiasm a little bit. As much as all this sounds great, it's a lot of luster, and in reality, whether it's Trump or any other president, only about a fraction of these things will probably get done, and certainly not to the level that we think they could get done in the speech. So, when I see the Dow hitting 21,000 today, and it feels like just a while ago we had 20,000, so it's remarkable, we have to understand that this is not, as an investor, a rally I want to chase. I didn't listen to the speech last night and say, "Gosh, I have to go out and buy stocks." The stock market is already at a high, it's at new highs, and I would say there's so much enthusiasm for what Trump and the administration want to do, you have to realize that's so little of that is going to get done. I think we heard so many great speeches from President Obama over the years, or even Bush before him, about these really impressive in the sky figures, numbers, projects, ideas. In reality, it's hard to get things done, and I think Trump is probably going to realize that, and at some point, the market might realize, investors might realize, all those promises, getting the corporate tax rate to 15%, getting $1 trillion in spending, we didn't get quite what we expected.
David Kretzmann: Yeah, in general, I think you want to be careful investing based on what a politician says or doesn't say. You want to take it with a grain of salt. Like Matt said, you don't really know what will actually get done and to what degree. But, when we're talking about tax reform, I think another thing in the back of investor's minds is repatriation, the ability for some of these global businesses like Apple or Priceline to have a tax holiday and bring the billions of dollars in cash they have overseas back to the U.S., where they can buy back stock, issue dividends, make acquisitions. I think that's another piece. I haven't had a chance to watch the speech yet, I was in D.C. watching The Warriors Game. I'll have to catch up.
Argersinger: Probably a better use of time.
Kretzmann: Maybe. I was in D.C., I was close enough. But, along those lines, I think it's interesting that even with the market hitting new highs since the election, you have Warren Buffett and Berkshire Hathaway really being net buyers of stocks to a pretty large degree. Warren Buffett, in an interview on CNBC on Monday, following his shareholder letter over the weekend, he mentioned that he had doubled Berkshire's holding in Apple in January, and that was as the market was hitting new highs. Now, Buffett and Berkshire own $18 billion plus of Apple, which has been a solid investment. I know we talked about this last week on Market Foolery, Berkshire and Buffett, we see them as value investors. So, I think it's interesting to see them finding what they see as good opportunities even as the market is hitting new highs. That's primarily been with Apple and airlines in the case of Berkshire, but I think that's something worth noting.
Argersinger: Yeah, I thought it was a good point Buffett made, too. Becky Quick asked him what he thinks about the stock market and the valuation of the market, and he said he didn't really see a bubble in the market, because at all times you have to compare the valuation of the market to the level of interest rates. As we know, interest rates are still near historical lows. I would argue -- and this is just me putting my economist nerd hat on -- all the stuff that Trump talked about last night, if even half of that came to fruition, we're talking about a lot of increased investment spending and inflation, because of the nature of the velocity of money that we're talking about. Usually, in periods like that, we see rising interest rates. The Fed is probably going to raise rates this month. Again, I'm not trying to be the wet blanket here, but dial down the enthusiasm.
Kretzmann: I agree with that. Here at The Fool, we focus on individual businesses. I think regardless of who's in power, you want to invest in businesses that you're comfortable owning for many years, regardless of which president or political party is in power. So, that tends to be the focus we take, looking at individual businesses. I think investors can still find opportunities even as the market is rising. But yeah, you want to take it with a grain of salt when politics enters the equation.