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Take a step back before you buy into the Trump rally

Advisors caution against impulsive moves

Investors should take a breather before going whole hog into the Trump stock rally.

U.S. equities surged to new heights on Wednesday, with the Dow Jones Industrial Average rising by nearly 300 points to close at 19,549.62. Meanwhile, the Standard & Poor's 500 Index jumped by 29 points to close at 2,241.35.

Both indices have climbed since the Trump rally kicked off after Nov. 8.

But chasing these market heights isn't for the faint of heart.

Financial advisors are warning investors to avoid making reactionary moves and to consider how this rapidly heating market fits in with their overall financial picture.

"I'm always skeptical in times of change, and I think we're seeing a lot of hype," said Douglas A. Boneparth, president of Bone Fide Wealth in New York. "I encourage everyone to exercise caution and see how this rally relates to your long-term strategy."

Keep perspective

If you're thinking about selling some of your big winners to realize capital gains, be sure to consider the tax impact before doing so. Don't forget that tax rates may be lowered under Trump.

"If you think you have some big gains, and you lock them in now, you'll have to pay a capital gains tax now," said Ed Slott, founder of Ed Slott and Co. in Rockville Centre, New York. "Under Trump, it may cost you less."

You could offset those realized gains by selling some of your poorly performing stocks.

"We have a market based on Tweets." -Ed Slott, founder of Ed Slott & Co.

Boneparth of Bone Fide Wealth noted that while some of his older clients are selling some of their top-performing stocks to lock in gains, his younger ones aren't obsessing over the market rally at all.

"The money that's being managed is mostly long-term money," he said. "They know we'll see more peaks and valleys over the next 20 to 30 years."

Buy cautiously

The market run-up won't go on forever.

"We expect to see a pause," said Victoria Fillet-Konrad, chairwoman of Blueprint Financial Planning in Hoboken, New Jersey. "Long-term,we are value investors and the focus is always on individual stocks as opposed to the market as a whole."

That said, don't go into a buying frenzy in hopes of chasing even greater heights. Let a company's fundamentals — including cash flows and balance sheets — drive your purchase decisions, as opposed to the news cycle and social media, said Slott of Ed Slott and Co.

Indeed, on Tuesday, Boeing's stock fell by as much as 1 percent after the president-elect threatened on Twitter to cancel the order for a new Air Force One. The defense contractor's stock recovered the losses later that day.

"This bump in the market is artificial," Slott said. "This isn't based on fundamentals; it's based on news.

"We have a market based on Tweets."