Stocks sold off globally in the hours after the Trump victory, but US and European stocks quickly recovered. Investors are already looking past the headlines. Plus, don’t forget that the S&P 500 has traded down already since September (about 4-5% at one point) on rising recognition of a potential Trump victory.
Underlying Rationality: Investment activity today is proceeding rationally. Hopes of less regulation is helping pharma and financials, expectations for greater spending on infrastructure is helping certain industrials, and anticipation of higher rates (inflation from infrastructure spending?) is crimping bonds, utilities, and emerging markets stocks but boosting precious metals. These are short-term and speculative, but they illustrate an orderliness.
Lots of Policy Unkowns: As with the Brexit decision in June, the prospects of a Trump Presidency will need time to gain clarity. He has offered little in the way of concrete policy decisions. Broad themes include: boosting economic growth for the US through fiscal policy (higher spending, lower taxes) and less regulation in banking/biotech/health care. We view these as positive. At the same time, his rhetoric supports hard-line stances on trade (particularly with China and NAFTA), immigration (particularly Mexico), and potentially diplomacy (e.g., NATO). We view those as negative, in a broad sense.
Implications?
From a broad lens, the Trump win offers yet another indication that major segments of society feel abandoned or neglected by political elites and the government in general. In the US, globalization and technology have helped economies along the coasts and in major cities, but has arguably left the middle states behind. There’s also evidence that a Trump victory brings heightened concern about race relations (divisive approach) and international diplomacy (xenophobia and protectionism). We hope a Trump administration will evolve to be inclusive and aware of these risks.
For investments, we would expect upward pressure on inflation, potentially wider national deficits, and a weaker US dollar in all this, although the reality is that Congress may help keep extreme hard-line positions in check. Many of these forces are already in play anyway before today’s news.
We don’t anticipate making any changes given a Trump presidency. Electing a President is a big deal, but it usually doesn’t have sustained implications for stocks and bonds. The underlying fundamentals tend to be slower moving and more important. Click here for our recent report on the impact of elections.
As you would expect, we have 1) set customized investment objectives for each client to accommodate unexpected developments such as today’s events, relative to that client’s particular near-term and long-term needs; and 2) actively positioned individual investments within portfolios for future opportunity, based on our assessment of on-going fundamentals.