So ‘The Donald’ has done it. Much to the confusion of the pollsters, the liberal media and the watching world, Donald Trump has done what few thought possible and will be the next president of the United States. He was aided by a very unpopular democratic candidate.
During the night, markets reacted violently. Many Asian markets were down sharply, gold was up and the US dollar was down. However, much like the other seismic political shock in the summer, Brexit, the initial pandemonium was replaced quickly by pragmatism and the markets have largely recovered. When the results first started appearing, the Dow Jones futures indicated that when that stock market opened, it would do so about 8% down. In actual fact as I write this, it is down about 0.33%. Daily swings of more than this are usual. In other words, nothing out of the ordinary has happened today!
When Brexit happened, those that panicked crystallised losses and missed the sharp bounce a few days later, whereas those assets that remained invested recovered quickly and have generally seen gains since. The benefits of long term investing and a well-diversified portfolio are evident.
President-elect Trump isn’t stupid. He knows how ingrained the stock markets are in the American psyche and despite the previous rhetoric he will want to ensure that markets remain calm. He already appears conciliatory towards Hillary Clinton. Some sectors will be seen as winners, such as healthcare, banking and construction. He has, however, also talked about a more protectionist policy towards trade which, of course, is not necessarily good for the health of the global economy.
The key question though is the impact on long term investments. President-elect Trump has vowed to put American interests first and rebuild crumbling infrastructure. As a frequent traveller to the US, I can attest to the fact that roads, bridges and airports need rebuilding. The bill will run into trillions of dollars. If he even achieves half of what he wants to do on the infrastructure front, then there would be a big boost to US growth. This in turn will push inflation up, thus forcing the Federal Reserve to attempt to normalise interest rates. I thought that December would probably see the next rate hike by the Fed, I think Trump’s victory makes this less likely.
President-elect Trump also appears much friendlier towards Russia and Vladimir Putin. Whilst many other world leaders have been fairly negative in their comments today, Putin has been warmer. In a geopolitical sense that is surely positive as tensions have risen strongly over the last few years.
A boon for the UK is that Trump has made more positive statements about Brexit and the chance of the UK getting a trade deal with the US. Don’t forget that President Obama said the UK would be at the back of the queue.
So, in summary, the unthinkable has now happened twice in 2016, roll on the Italian referendum in December for the next! As long term investors however, the key is not to panic. Share prices, whilst not cheap, are also not expensive in my view, and with inflation and base rates still at historically low levels, the case for owning equities remains strong.
Ben Yearsley November 2016
This article represents a personal view from Ben Yearsley, and is based on his opinion of economic data from across the globe. It should not be used for investment purposes and does not constitute advice. For investment advice please refer to your financial adviser. No party should act or refrain from acting on anything contained in this material. Relevant primary materials should always be consulted at all times for all purposes. No statements or representations made in this material, document or at the presentation are legally binding on Shore Financial Planning (Plymouth) Ltd or the recipient and no liability is accepted in connection with this material. This article may not be reproduced or circulated without prior permission. Issued by Shore Financial Planning (Plymouth) Ltd, authorised and regulated in the UK by the Financial Conduct Authority.
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