Financial Markets Post Election 2016
With the uncertainty of the election now behind us, the uncertainty of the future awaits. The apparent election of Donald Trump to the office of President of the United States has initially unnerved the markets. Overnight, the futures on the S&P 500 were down over 800 points. Not completely unexpected considering what the expectations were going into the election but also not completely justified.
What will a Trump presidency portend for the markets? I believe that there will be a few ideas that will resonate thru his term.
1) I believe that his administration will take a very Keynesian approach to the economy. Be it infrastructure spending, repatriation of cash from overseas or amending tax codes, I expect the supply of money will increase as he tries to jumpstart an anemic economy. I think that the economy should begin to expand at a pace faster than 3% annually.
2) Business will begin to flourish. With the prospect of reduced regulations, the repeal or overhaul of the Affordable Care Act and proposed lower tax rates, businesses should have a heavy hand lifted and begin to do better.
3) I do not think that all the extreme rhetoric that that was heard during the campaign will come to fruition. While the Republican retained control of the House and Senate, there is still factions within both parties that will have a voice.
The markets do not like uncertainty and should remain volatile until there is a clearer picture of what the Administration of a Trump presidency will composed of. Not to be lost in all this, is a Federal Reserve that is still expected to raise rates in December. Whether Janet Yellen will remain Chairperson, her term expires in February of 2018, remains to be decided.
What are the opportunities presented by this? I think that the volatility in the markets will present retracements that will allow equities to be added to the portfolio. One of the reasons that I have cash in the accounts is to deploy if these drops occur. I think that REITs, small and mid cap companies, MLPs, TIPs and Dollar hedged foreign equities should benefit.
I do believe that this election was a “throw the bums out” election as opposed to elect this person. Many voters feel extremely disenfranchised do to a stagnant economy. They wanted change and voted that way. President elect Trump will have to work with both his own party and opposition party to accomplish his tasks. I think that the US economy should strengthen, especially if inflation begins to pick up.