Last night Donald Trump won a surprise victory in the US presidential election. The victory initially shocked global markets, which had been pricing in the likelihood of a Clinton victory. The initial reaction was heavy selling in overnight markets. At one point, S&P 500 future were down -5%, the downside limit in overnight trading. But soon after his acceptance speech, markets began to rebound from their lows. That initial buying spurred additional waves of follow on buying, and soon the markets had erased all their losses and moved to gains for the day.
What to expect?
A Trump presidency has the potential to bring with it policies that could be favorable for financial markets, and others that have the potential to exacerbate volatility. If he is able to lower corporate taxes, incentivize companies to repatriate overseas cash, and implement a pro-growth infrastructure plan the stock market would likely view these as favorable (especially lower corporate taxes). Additionally less regulation (Obamacare, Dodd-Frank) would help sectors such as pharma/biotechs as well as banks and financial services.
Conversely, several other policies Trump has mentioned that could lead to trade protectionism, penalizing China, and a crackdown on immigration would be concerning for financial markets and add to volatility. Trump has no track record when it comes to governing, so it is all just speculation at this point. Gaining Republican control of the House and Senate should help his initiatives, but we will all have to wait and see how it all unfolds in the weeks, months, and years ahead – not in the first day following the election.
What do we do now?
As we have written about all year, we came into this year with a more cautious outlook and defensive posture in our portfolios. In that sense, we were already positioned for a surprise outcome in this election. So there isn’t anything that we need to rush out do today in light of a Trump victory. We will continue to proactively manage risk in our accounts, and take actions where we deem appropriate given the risks and rewards present in the financial landscape. But it is important to remember the long-term benefits of a sound investment plan and try not to make short-term decisions in reaction to an emotional event.
Jordan L. Kahn, CFA
Chief Investment Officer