While the nation is adjusting to this year’s unprecedented election, it is important to take the longer view. Every four years a substantial part of the electorate is devastated by election results while an equally large number of individuals are elated and filled with great hope. In spite of the extreme vitriol expressed by the candidates during the 2016 campaign, America is a country that respects its institutions, including the transitioning of power. We are expecting a smooth passage of authority this year, and look to leadership from President-Elect Trump, Secretary Clinton and President Obama to calm the emotional waters.
After any sudden and unexpected change, the markets (and as a result your portfolios) can experience enhanced volatility. President-Elect Trump’s policies are fairly broad and vague, leaving them open to interpretation. In addition, very often campaign promises are massaged, ignored, or get lost in the long process of negotiation that underlies democratic decision making. Until Trump selects his transition team and spells out the specifics on his economic views, markets could remain on edge. Tone and consistency will be important for the markets, which prefer certainty to uncertainty.
Several of Trump’s themes are pro-business. As a reminder, investors own pieces of companies (whether equity or debt). These corporations in all likelihood will continue to have the ability to innovate and create, as well as generate earnings and dividends. This has not changed. Some of Trump’s themes could be helpful to businesses: de-regulation, lower taxes and infrastructure spending. Again, the details will matter.
Where concerns are greatest is in foreign policy, in particular reversal of trade agreements, isolationism and international relations in general. The global economy is complicated, involving currencies, import/export dynamics and geopolitical risk. Multinational corporations are particularly vulnerable to changes in the terms of trade and outright trade wars can be negative for employment and growth. Overseas markets appear nervous as they try to re-evaluate America’s relationship with – and its commitment – to other countries and regions.
Some have asked. “Will Trump’s election lead to a recession?” That depends on the reaction of consumers and companies. If everyone takes the attitude of “business as usual,” the economy is likely to continue on its slow, modest growth trajectory for quite some time. However, if consumers and businesses develop a “wait and see” attitude and/or pullback on their plans to buy and invest, there is a chance we could experience a self-induced recession in the nearer term.
It all gets back to a smooth transition of power. America is tired of grid-lock and anger. We challenge both Trump and the newly elected Congress to respect the request of the public for change, which we interpret to mean a desire for functional government.
In the meantime, as your financial advisor, we will continue to monitor your portfolios, balancing exposure to risk with identifying opportunity, as markets struggle to define the policies and programs that will be introduced in 2017.
Betsey A. Purinton, CFP®
Managing Partner and Chief Investment Officer
Derek M. Amey
Managing Director and Portfolio Manager
The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Betsey’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.