The win for Donald Trump highlights the feeling of dissatisfaction among middle class America. Similar to the surprise outcome of the Brexit vote, rising equality and discontent with the upper corporate and political end of town has seen a backlash against the establishment and helped deliver a victory for Trump.
Investors in Australia and around the world may wonder how their portfolios could be affected by the outcome of this contentious political season. The short answer, is that presidential elections typically don’t have a long-term effect on market performance. This is highlighted by Vanguard calculations showing the historical 100 day market volatility before the election has typically been 0.39% whilst after the volatility post elections has only been 0.04%. Saying this, some of Donald Trump’s pre-election antics have and will continue to breed uncertainty and it is uncertainty that ultimately creates the volatility. Therefore, compared to other elections outcomes, the volatility may continue for some time.
So far, the response has been very similar to Brexit with a dramatic move downwards later muted by a recovery. Markets typically react to surprises with the kind of extreme swings we saw yesterday and overnight. This has already been seen today with the bounce back in the Australian market.
Moving beyond the ‘man himself’, and focusing on the future, the real outcome will depend on the sort of advisers Trump appoints around him. With the right advisers, one may even be surprised that some of Trump’s economic policies could provide a boost to the US economy. As long as Trump’s plans do not blow out the budget deficit or a trade war is not started with some of his protectionist policies, his plan for significant tax cuts, infrastructure spending, free trade agreements, reduce regulation, may benefit the US economy and filter out to other markets.
The world will be watching closely how the Trump Administration takes shape. As has historically been the case, expect to see the usual cooling of campaign rhetoric give way to more pragmatic and sensible policies in the months to come.
We need to be reminded of the importance of separating emotional reaction from the investment process. It is our strong belief that a systematic approach to building portfolios that are well diversified and can adapt to economic and market fluctuations is the best way to deliver the right outcomes.
At Active FS we are diligently monitoring market conditions and your portfolios to ensure that we continue to do so through these emotional, volatile times. If there is a more pragmatic approach by Trump to economic policy one could see the initial market reaction present investor with a buying opportunity.