Elections are always volatile periods for the markets, and this past November was no exception.

What appeared to be a win for Hillary Clinton in the weeks prior to November 9 turned into a stunning defeat. But Donald Trump’s win elicited an equally surprising market rally, with the S&P 500 Index jumping 3.4% on the month due to the “Trump bump.”

Financials and industrial stocks led the way on the promise of decreased regulation and increased infrastructure spending, while emerging markets and technology sectors were left out in the cold due to concerns of protectionism.

Amid this volatility, Smart Money Alert held its ground despite steeper than expected losses in emerging markets.

In fact, the portfolio finished the month positive: It gained 1.21% in November, riding the surge in strength in base metals and the aerospace/defense sector, with a drag coming from only two of our holdings.

Moving into December, the Smart Money Alert is looking to build on its year-to-date market outperformance.

Since the beginning of 2016, the portfolio is up 17.7% versus just 9.8% for the S&P 500 Index — almost double the index’s performance.

With that in mind, let’s look at our trades for this month:

Closing Positions

Here’s what we’re selling for December:

• The iShares MSCI BRIC ETF (NYSE: BKF) position, which had a portfolio allocation of 20%. In November, the ETF declined by 3.26%.
• The iShares MSCI Chile Capped (NYSE: ECH) position, which had a portfolio allocation of 20%. In November, the ETF declined 6.25%.
• The iShares S&P Technology Index (NYSE: IGM) position, which had a portfolio allocation of 13.33%. In November, the ETF rose 0.04%.
• The Technology Select Sector SPDR ETF (NYSE: XLK) position, which had a portfolio allocation of 13.33%. In November, the ETF rose 0.17%.

New Trades

For December, the Smart Money Alert system adjusts to the shift in power in Washington by moving away from risk in certain emerging markets and technology and into the financial sector and industrial production.

We’re also holding onto two key performers from November, since base metals and the aerospace/defense sector have easily outperformed the broader market in recent months.

Commodities

With base metals seeing an explosive rally following the election, we are maintaining our 20% portfolio allocation in PowerShares DB Base Metals ETF (NYSE: DBB). The top holdings for the ETF are futures in aluminum, zinc and copper — Grade A.

Action to take: Hold your existing position in PowerShares DB Base Metals ETF (NYSE: DBB), with a portfolio allocation of 20%.

Emerging Markets

With the increased potential for protectionist policies from the incoming Trump administration, emerging markets were quite volatile in November.

However, both Chinese and Russian markets could benefit from the new regime in Washington.

As such, we are buying more direct exposure to China via the SPDR S&P China ETF (NYSE:  GXC) and Russia with the Market Vector Russia ETF Trust (NYSE: RSX).

Action to take: Buy the SPDR S&P China ETF (NYSE: GXC), with a portfolio allocation of 20%.

Action to take: Buy the Market Vector Russia ETF Trust (NYSE: RSX), with a portfolio allocation of 20%.

U.S. Sectors

The November election saw focus move away from technology and toward finance and industrial production.

Investors expect Trump to dial down regulations for the financial industry, as well as put pressure on the Federal Reserve to raise interest rates.

Meanwhile, Trump has also promised to spend heavily on U.S. infrastructure — $1 trillion over the next 10 years — thus providing a potentially significant boost to industrial sector heavyweights.

This has prompted us to shift into the Financial Select Sector SPDR Fund (NYSE: XLF) and the Industrial Select Sector SPDR Fund (NYSE: XLI).

Finally, we are holding our position in the PowerShares Aerospace & Defense ETF (NYSE: PPA), which targets companies in the defense, military, homeland security and space operations sectors.

Once again, the Trump administration has proposed modifications to the U.S. armed forces budget, which should benefit the sector going forward.

Action to take: Hold your existing position in PowerShares Aerospace & Defense (NYSE: PPA) ETF, with a portfolio allocation of 13.33%.

Action to take: Buy the Financial Select Sector SPDR Fund (NYSE: XLF), witha portfolio allocation of 13.33%.

Action to take: Buy the Industrial Select Sector SPDR Fund (NYSE: XLI), with a portfolio allocation of 13.33%.

Altogether, here are the actions we’re taking for this month:

Kind regards,

Ted Bauman
Editor, Smart Money Alert