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b"With Sam Stovall, Chief Investment Strategist at CFRA Research
The Trump effect on stock market: From hype to snipe and gripe?
Veteran equities analyst and market patterns historian Sam Stovall joins Steve to talk about recent gains in the stock market, the Trump effect on markets, and the volatility and valuation of stocks headed into 2017, among other topics.\\xa0 Steve kicks off the interview by asking Sam to review the market's reactions to President Trump's actions both before and after he was inaugurated, a sentiment that may be encapsulated in the phrase \\u201cfrom hype to snipe, then gripe\\u201d.\\xa0 Stovall describes the exuberance that followed Trump's election victory as powered by expectations of deregulation of the financial industry among other sectors and a surge in earnings from industrial and materials companies that would benefit from the infrastructure development that Trump promised.\\xa0 Fast forward to February, less than a month into Trump's presidency, and amidst the barrage of executive orders, there is a growing sense that perhaps some of the more heavily anticipated programs in Trump's agenda won't roll out in his much ballyhooed first 100 days in office, or even the first 200.\\xa0 Stovall avers that the collision between the market's early pricing in of Trump's promised deregulation and stimulus and reality may result in a giveback of steep gains made since last November.
Stock market volatility 2016\\xa0
At Steve's prompting, the conversation detours to the stock market's performance in 2016, a year that saw a good deal of volatility between its bearish start and strong finish.\\xa0 Tom recalls that many investors were expecting a recession at the beginning of 2016 led by weak earnings, a collapse in oil prices, and worries about China.\\xa0 After further consideration, many came to the conclusion that the problems were mainly confined to the energy sector, and this analysis enabled a broader market rebound.\\xa0 As far as the volatility is concerned\\u2014the market swung 23% as measured by the early lows to its end of year highs\\u2014Stovall points out that the market has averaged an annual 27% movement in every year since WWII.\\xa0 While it may have seemed volatile, in historic terms it was actually a bit less volatile than normal.\\xa0 Steve remarks that this data reveals an important lesson about volatility, namely that it does not reliably predict major market downturns.\\xa0 Stovall agrees and amplifies Steve's point by noting that the stock market posted gains in 85% of the years since WWII.\\xa0 Moreover, most of those up years experienced a negative year-to-date return at some point.\\xa0 Stovall deduces from this data that volatility is simply a part of investing.\\xa0 He makes a final, salient observation that volatility in bull markets rises over time and that the longer a bull run lasts, the more unstable it becomes.
Bull market resilience and exhaustion
In another insight drawn from Stovall's trove of historical research, he describes a pattern in bull markets of robust recovery to break-even levels following 5-10% pullbacks and 10-20% corrections. Since WWII, 8 out of 10 market declines have returned to break even within 4 months, supporting the case to be made for buying stock during a pullback or correction.\\xa0 Steve wonders whether this particular bull market is nearing an end, based on P/E ratios and its unusually long run, the 2nd longest since WWII.\\xa0 Stovall reckons that bull markets \\u201cdon't die of old age; they die of fright\\u201d and that what they fear is recession.\\xa0 For this reason, Stovall focuses on broader economic trends, expressed by indicators like the treasury yield, number of housing starts and consumer confidence and supplemented by leading indicators, all of which can shed light on where the economy is heading.\\xa0 According to Stovall,"