Wall St closes at surprising record high


Making predictions can be a tricky business. It's easy enough to make the prediction. Having it turn out to be right is much harder.

That applies not only to political pundits, but also financial analysts.

World stock markets were supposed to fall if Donald Trump was elected.

Instead all four of Wall Street's major indexes closed at record highs on Monday US time (Tuesday New Zealand time). That was the first time since 1999 that all four (the Dow Jones Industrial Average, the S&P500, the tech heavy NASDAQ and the Russell 2000) had closed at a record high on the same day.

They repeated the feat the next day, with the Dow closing above 19,000 points for the first time.

So why the change in sentiment?

Investors now believe (or at least hope) US stocks will benefit from the massive financial stimulus that will result from Donald Trump's plan to rebuild America's aging infrastructure (highways, bridges, etc.).

The markets are also buoyed by the prospect of corporate and personal tax cuts and the relaxation of some regulations.

Energy, financial and industrial companies are among the sectors that have done the best since the election. For the year to date, US energy stocks have risen 23 percent, industrials are up 18 percent and financial stocks have gained 16 percent.

The New Zealand market has not rallied in the same way as US stocks. They regained the losses from election day, but the market is still down about ten percent from its September peak.

It depends on what type of fund you are in. Growth funds have a much greater exposure to stocks, while Conservative funds have a much larger weighting towards fixed interest assets.

There are also differences between the Growth funds, with some having more exposure to international equities and others having a great emphasis on Australasian stocks.

Another big question is where to from here?

After hitting new highs in 1999 the US markets sold off heavily from 2000 - 2002.

Some analysts are warning that the current euphoria could end as investors think more clearly about the impact on profits of a rising US dollar and rising interest rates.

Investors in retirement funds cannot control this.

The Commission for Financial Capability advises that people think about their long term savings goals.

General manager of investor education David Boyle says investors need to remember that KiwiSaver, and other retirement funds, are a long-term investment. A person in their 20s could be in KiwiSaver for 40 or more years. A child might be in KiwiSaver for more than 60 years.

Mr Boyle says it can prove a big mistake to make a long-term decision based on a knee-jerk reaction, and people should continue to make regular contributions to their KiwiSaver fund.

They should also think carefully before switching from one fund to another, or from one KiwiSaver provider to another.

Mr Boyle says if you have concerns you should talk to your provider to make sure you are in the right fund for your age and risk appetite.