Investment Impact of Trump’s Victory

November 9, 2016


Trump's Victory


With some media outlets predicting a 99% chance of a Clinton victory, Trump’s win has surprised most pollsters, political analysts and observers. Following a similar pattern to Brexit, Donald Trump did better than expected by pollsters, enabling him to win important swing states, although the popular vote is broadly level.

The initial market reaction has been negative given the anticipation of a Clinton win, although most have since recovered some ground. Trump’s victory speech made an attempt to unify the nation, calling for his country to work together as well as holding out an olive branch to those who fought against his campaign. The market reaction appears to be more associated with uncertainty, rather than particular policies. Investors’ reactions have been in a typical “risk off” manner, with safe haven assets rallying and equities and oil falling.

In the longer term, a Trump presidency has widely been considered as one which will cause an increase in protectionism globally. This has the potential to be a drag on global trade and as a result, global growth and prosperity. However, the translation of Trump’s policies during his campaign into action may be a drawn out process, with both Republicans and Democrats likely to resist anything too radical.

The political “risk” to markets will continue to be high, as there will be an increase in less orthodox policies put forward. In the attempts of investors trying to sum up these risks, risk-averse strategies may be more attractive to many, and result in weaker or more volatile financial markets.

US Election & Votes trump's win

However, the U.S. economy that President Trump will inherit is in pretty good shape. Real economic growth has picked up in recent months while the unemployment rate, at 4.9%, is close to many economists’ definition of full employment. The uncertainty and volatility following the U.S. election will likely reduce the probability of a Federal Reserve increasing interest rates in December, as they will want to leave their options open until it can assess the market and economic fallout from the election result.

A positive in Trump’s rhetoric has been his desire for a dramatic increase in infrastructure spending as well as tax cuts (being a more traditional Republican policy). This does have the potential to be a driver for economic growth as fiscal spending has long been seen as the missing element of a recovery. With employment already so tight and inflation on the up, a fiscal expansion could also cause an increase in inflation in the longer term, all other things being equal.

From our Investment Team:

In terms of an investment portfolios, we like take a long term not basing investment decisions on a particular outcome. Strong geographic and asset class diversification will help reduce the impact of the resultant volatility and influences of market sentiment. A strong market reaction to the result may create opportunities that could be advantageous in portfolios.