It is the morning after the US Presidential election and Donald Trump sealed an historic and surprising victory. As I watched the news last night, the moment Ohio was called for Trump, I just knew Clinton’s presidential aspirations were over. Florida was too close for Democratic comfort and unfortunately, the markets…and polls…and perhaps Trump, himself…did not expect a Trump victory. Moments after Ohio was called for Trump, DOW futures plummeted 700 points. As the evening went on, DOW futures were down as much as 850 points. By early morning, Trump became the 45th President of the USA and the Republicans retained control of both houses of Congress.
This has been one of the most divisive Presidential campaigns in history and was propelled by white, working class American voters who crossed party lines to back a billionaire who vowed to return jobs to them and said all of the right things that the majority of voters wanted to hear. There is a lot of policy uncertainty due to Trump’s lack of specificity during his campaign. Although there is a BIG difference between campaign promises and official policy, there are 7 radical policy changes that could potentially be made in a Trump presidency and Republican controlled Congress.
- Trade – Trump called for fundamental changes to the NAFTA pact with Mexico and China and punitive tariffs on Chinese imports. I think it is more likely there will be only cosmetic changes because although it may sound good in theory, it would lead to trade wars and ultimately, hurt US growth and employment.
- Foreign Policy – Trump was vocal about his criticism of President Obama’s deal with Iran. He also questioned our financial commitments to our NATO allies, who are not pulling their weight. And then there is Putin. Trump started to moderate himself later in the election campaign. This is probably because he had started getting security briefs similar to those given to President Obama and so had a better understanding of what was really going on in the world.
- Healthcare – He has said that Obamacare needs to be “released and replaced”. I am not convinced this will happen but if Trump encourages competition between markets in different states, that would be a positive change.
- Tax Policy – Trump promised the biggest tax revolution since Reagan, reducing taxes across the board for all Americans and businesses. Personally, I would like to see some of these promises come to fruition. There is bipartisan support for this so expect some policy changes.
- Supreme Court – In my mind, this could potentially be the greatest consequence. Our highest court is split evenly between conservative and liberal judges and unless a miracle happens between now and January, Trump will choose the next judge, who will likely be conservative.
- Climate Change – Trump actually called global warning a hoax invented by China. Seriously. He vowed to cancel the Paris climate agreement. We’ll have to wait and see what happens.
- Immigration – Who can forget his pledge to build a wall on the Mexican border? Trump also had plans to ban Muslim immigration and deport unauthorized immigrants. Those statements had been tempered later in his candidacy, though.
There is also a concern that the Department of Labor’s Fiduciary Rule could be reversed or halted. Certainly, large brokerage firms could push for this and it may actually happen. The Dodd Frank Law, which was meant to reform Wall Street, may also be on Trump’s radar.
What is important now is to remember that Trump is not, and never was, a joke. He does not want to be seen as a fluke of history but rather as a success, a winner. He is someone who wants to make a mark on history, whether it is business, real estate or the free world. He wants to “Make America Great Again” and be a “President for all Americans”. That said, expect to see a Republican agenda of policy change and infrastructure spending over the next 2 years with the support of a Republican-controlled Congress.
At the moment, US markets are flat. This is, in no small part, due to his gracious acceptance speech. I hope that this tone continues as it will calm investors and the world, which has been anxiously watching this election process. Investors seem to be digesting a Trump Presidency. Going forward, I think that markets will react well to Trump’s continued focus on tax reform and deregulation, which has bipartisan support, and downplay of Chinese tariffs and trade renegotiations. Unity is important because as we all know, the market does not like surprises.
So it looks like the world is not going to end after all. Right now, it is a good time to sit tight and not make any major investment changes. It is prudent investment advice in most volatile circumstances and certainly now, when it is so difficult to make predictions based on campaign promises vs. actual implementation. Election results do not cause recessions…policy changes can, though. And policy changes can factor into financial market trends, but they do not, themselves, change the trend. I have previously shared this ARTICLE with you, but now may be a good time to review the relation between election results and financial markets.
As always, if you have any questions or concerns, please contact me.
Olivia A. Mussett, CFP®