Surprise! The pollsters and pundits were dead wrong on the presidential race. Wall Street doesn’t like surprises and the initial reaction was to sell stocks. Overnight, professional traders sent stock futures plunging nearly 5% as it became clear that Trump could win. That knee-jerk reaction to political, rather than economic, news was costly as stocks opened marginally higher this morning, within 2% of their all-time highs and they are pushing closer to new highs now.
Yesterday’s election ended the political uncertainty that has hung over the markets this year, though the election of Trump, a political newbie, means a different kind of uncertainty has been introduced. Unfortunately, it will likely take months (or more) to answer many important questions that come to mind for markets and investors.
Questions we’re pondering this morning include:
Will Trump take the election result as a mandate for the Republican Party to move forward on their agenda? Or will he remain at odds with some of their wishes and take a more moderate stance in hopes of a re-election bid in 2020?
For investors, there are many questions about the regulatory tack he’ll take. He may be able to appoint two SEC commissioners and a new SEC chief. Will they be Wall Street shills or more consumer-protection focused? He doesn’t like regulations, but will he repeal the consumer friendly DOL fiduciary rule on IRAs that is due to take effect in April?
He has talked about reinstating a Glass Steagall Act wall between commercial and investment banking that could be hard on banks, but may be good for the economy. The Dodd-Frank financial reforms passed in 2010 have slowly been implemented over the past several years. Will he follow through on his campaign rhetoric and repeal some or all of it? On a Glass Steagall bill, he’d likely be at odds with Congressional Republicans.
Trump’s campaign has described the NAFTA trade treaty as the worst trade deal ever and the Trans-Pacific Partnership as a close second. He vows to make better trade deals, but will he hurt trade and the economy or truly be able to improve trade terms for the U.S.?
From an investment standpoint, we don’t see the surprise change in president dictating any investment moves at this point. We’ve always been amazed at how well the US capitalistic economy survives the dysfunctional Washington politics. While half the country is disappointed in the election results, the truth is that Washington typically just tinkers at the margins. Politicians rarely have a significant impact on U.S economic growth one way or the other, despite what the two candidates have been preaching for months.
The main concern we have at this point is that one party will control the White House, Senate and Congress. If they work together, they may get some things done. That may be good, but more often than not, it leads to a reversal in the next Congressional election. We’ll be watching how well the Republican Congressional factions and the new president get along and what legislative changes become their priorities as we head into the New Year.
For now, we’re pleased that the stock market, despite the surprise, didn’t react like the last time we elected a new president in 2008 and it fell almost 5% the day after the election. There well may be continued volatility in the weeks and months ahead, but, this morning, we like this positive kind!
