With the unexpected results of the Presidential election last night, it’s time to reevaluate investments in light of the possible effects of a Trump presidency on our investments. I’ve been concerned about the possibility of a recession for some time and if Trump follows through on some of his campaign promises, he will trigger a recession which will hurt stocks, both US and abroad. However, he’s also promised to cut income taxes for individuals and businesses and this is likely with a Republican Congress. Historically, lower taxes have meant economic growth, so that may offset the negative effects of his trade and immigration policies. The longer term effect would be larger deficits but that would weigh on Treasury bonds, not stocks.
Many analysts are concerned about Trump’s anti-trade position. Enacting a trade war will cause inflation due to increased cost of goods, which may require the Fed to raise interest rates higher than expected. But again, we don’t know for sure if he will enact all his trade policies.
Tuesday night we saw large drops in stock prices as the results of the election came in. However, the US stock markets have completely recovered and bounced up significantly on Wednesday with biotech, prison industries, big banks, defense and infrastructure all winning big as investors expect them to benefit from Trump’s policies. Healthcare and hospitals took huge losses as Senate Majority Leader Mitch McConnell assured Republican voters that Congress will rush to overturn the Affordable Care Act immediately. Investors pulled out of long-term bonds, concerned that the proposed tax cuts and huge spending will increase the deficit exponentially.
So perhaps the fears of a stock market collapse were overblown. Even Warren Buffett, who was a huge Clinton supporter, is not too worried.
A diversified portfolio invested in a variety of asset classes and different sectors, both in the US and international continues to be my recommendation. Over the past year, I have been pulling back on allocations to US stocks given the threat of recession. Given this recent development, I continue with the recommendation to reduce exposure to US stocks. Additionally, I am increasing allocations to gold and real estate as a protection against inflation and market volatility.
As the Trump presidency unfolds, I will be monitoring the effects of his policies on markets in general. If you have questions about your portfolio, please do set up a phone call so that we can discuss in more detail. Meanwhile, if you're not happy with the results or the negativity of the campaign, volunteering in your community is a good antidote to the toxicity of politics.