The morning after the election, investors were understandably uncertain. We sent the following note to our clients to address any concerns:
After the polls called for a 70-90% likelihood of a Clinton victory, the world is surprised, to say the least. Investors don't like surprises, and the uncertainty that a Trump presidency brings is a recipe for amplified volatility. The market's reaction yesterday morning reeled back from the immediate knee-jerk reaction, but it paves the way for further volatility in the coming months. There are a few key changes we think will influence global markets.
First, Trump’s promise to increase spending on infrastructure and lower taxes, both typical virtues of the Republican party, have a higher likelihood of passing as the House and Senate are controlled by the Republican party. Although both will initially drive U.S. debt further into the red, they are both stimulative measures in an economy.
Second, Trump’s anti-globalization measures (stricter immigration reform, eliminating free trade agreements, wall building, etc.) are likely to be met with stronger headwinds from cooler heads and many senior Republicans who have openly disagreed with his policy proposals. Countries with aging populations like the U.S. and Canada need immigration to sustain growth. There will be several representatives who see that big picture. Powerful corporate multinationals will also put up a fight against tariffs and border control.
Finally, the case for a Fed rate increase in December now has more of an uphill battle. Although it is still on the table, there is a lot more to be considered before the change is made. A rate increase will be a show of positive outlook on the economy.
Aside from all the political factors at play, at the end of the day, corporate earnings are the force that drive the market. While there is some uncertainty in how the tide will affect those earnings in the near term, businesses will adapt. Although we will continue to monitor short-term policy changes, our long-term investment philosophy convictions remain the same. Stick to your plan, stay the course – a well-diversified portfolio is built to navigate these choppy waters.