Donald Trump’s surprise election win took many people by surprise. Somewhat predictably, the markets went into a bit of a tizzy in the immediate aftermath of the result but by the end of last week they had bumped right back up and were at record levels with the S&P 500 reporting a 3.8% gain over the week and the Dow Jones soaring, having hit record highs on Monday.
Of course, the general trends hide the shifts that are going on under the surface as stocks are traded in anticipation of what we can expect to happen based on Trump’s election promises. The predictions for the general economic outlook are as follows:
- Tax cuts for individuals and businesses in a shift away from Central bank-led monetary policy towards government-led fiscal stimulus
- $1tn of promised investment for infrastructure – expected to stimulate job creation and economic growth although how sustainable this is remains to be seen
- Deregulation of banking laws
- A protectionist trade policy with the TTIP agreement currently in negotiation between the US and Europe and the North American Free Trade Agreement (NAFTA) threatened
- Global economic growth to fall with emerging markets particularly hard hit
- Blocks on US immigration and deportations of illegal immigrants
Here’s a rundown of some of the potential financial winners and losers:
Banks and financial institutions – Tax cuts + infrastructure spending = reinflation of the economy which benefits banks. In addition, Trump has promised to relax regulation laws put in place after the 2008 financial crisis, a move that will be welcomed by the sector
The defence sector – defence contractors will gain from a promised boost to military spending on new ships and aircraft
Construction and engineering firms – manufacturers of heavy construction equipment are likely to gain from purchase of equipment needed for the infrastructure investment promised in president-elect Trump’s acceptance speech. Copper and mining firms will also benefit from an increase in demand for raw materials.
Pharmaceutical companies – the price controls feared under a Clinton presidency will not be realised which is a bonus for pharmaceutical companies, although they could lose out if Trump does away with the Affordable Care Act (Obamacare) as fewer people will be able to afford health insurance and healthcare.
Oil and gas – Trump’s stated aim of energy independence for the US will open the doors for increased oil and gas production.
Tech – Trump has made it clear that he is no lover of Silicon Valley. Since the result was announced tech stocks in companies such as Google, Apple and Facebook have fallen in value.
Renewable energy – climate-denier Trump’s win has done no favours to companies in the renewables sector. He has pledged to cancel the Paris climate accord and reverse President Obama’s proposed limits on greenhouse gas emissions. Stock prices of wind and solar companies have dropped as a result.
Companies heavily invested in Mexico – Trump has made no secret of his plan to tear up the North American Fair Trade Agreement which will have a detrimental effect on companies doing business in Mexico. Carmakers with Mexico-based factories in particular could be heading for trouble.
Knee-jerk reactions to the events since the election are not a good idea. There is likely to be some volatility in the months to come as we see how many of his pre-election promises Trump is likely to keep. Ignoring all the noise and maintaining a balanced portfolio within your parameters to risk is the best policy in the short term. Take some time to reflect on the economic landscape which will emerge as Trump establishes his presidency rather than trying to trade amidst such volatility, which is unlikely to bring you any major gains. Caution will be the watchword for the foreseeable future.
It is extremely difficult for individual investors to keep up with the markets. That is one reason why many of our clients choose multi-asset portfolios (MAPs) – off-the-shelf products from our award-winning investment management partner, Tilney Bestinvest. They do the hard work in monitoring markets and economic indicators and adapting investment strategy accordingly. The MAPs are all highly diversified and there are seven to choose from depending on your investment objectives and attitude to risk. Please contact us if you’d like to discuss them further.
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