Economy and capital markets
What Trump’s Win Means for Long-Term Investing
American voters shocked the world by electing Donald J. Trump as the 45th President of the United States. Overnight, stock market indices around the world initially plunged and gold skyrocketed on the surprising result. Trump’s populist agenda, including immigration reform and renegotiated trade deals, is already creating concern with U.S. trading partners. In one day, the Mexican peso fell 13 percent, its deepest dive in 20 years.
Investors should expect more volatility as President-elect Trump rolls out his agenda for the nation. While he has Republican majorities in the Senate and House to support him, there is enough disagreement even within Republican ranks that sweeping policy change may not be easy. In addition to immigration and trade reform, we should expect some form of legislation centered on corporate and individual income tax cuts coupled with increases in infrastructure and defense spending. Deficits and debt may also take center stage, which has implications for inflation, interest rates, and bonds.
The economy is fundamentally sound
Contrary to pre-election rhetoric, the U.S economy is not in ruin. Unemployment is below 5 percent, real estate prices are firm, energy costs remain low, and interest rates remain exceptionally low for borrowers. That said, the economy has been running below its potential, which helped pave the way for an outsider like Trump. A pro-growth agenda, combined with lower regulation, should be supportive of the economy and the stock market longer term.
The U.S. Federal Reserve will also take notice of this election volatility and factor it into any decision whether to raise interest rates this December. Central banks around the globe could also lean toward more monetary easing.
Rest assured, the Republic will continue
We should learn from the lesson of this summer’s Brexit. When UK voters shocked the world by approving withdrawal from the European Union, the stock market in London (and others around the world) fell dramatically, as fears of a worse-case scenario ruled the day. The markets recovered very quickly, though, as fears seemed to dissipate almost as quickly as they appeared. The market action in the United States over the last 24 hours has gone through a similar cycle.
Emotions are running high. We recognize that the results of this election leave about half of the country elated by the outcome and the other half concerned, even devastated. It is obviously not our place to cheerlead or console. We would only like to note that we have endured contentious elections before, and periods where we seem divided as a nation, but our republic has endured.
Investing is simple, but not easy. We all know we need to invest to achieve goals, especially when cash alternatives pay next to nothing. Holding onto growth investments like stocks during periods of market stress is tough, but as we just said, investing is not easy.
We don’t think panic and investing work well together. Many of our client portfolios are linked to financial plans factoring goals, risk tolerance, expected cash flows, and other individual factors. We must distinguish between periods of temporary loss and permanent loss of capital. Diversified portfolios may suffer temporary losses at times, but the long-term results favor the investor.