PMC Weekly Review - November 11, 2016
A Macro View – Trump trumps Hillary: What now for investors?
No matter whether your candidate won or lost in Tuesday’s vote, all Americans can now breathe a collective sigh of relief: it is over. Early Wednesday morning, the result of this long campaign was finally revealed. In a stunning upset, Donald J. Trump will become the 45th president of the United States on Friday, January 20, after defeating Hillary Clinton, who won the popular vote in
the election. After 18 months, and nearly $7 billion spent during this presidential race, there will be no more seemingly endless campaign ads, and no more questioning who will win. Now we can begin to focus on how the next four years will be different. The one thing that certainly will be missed is Hillary and Donald matched up in Saturday Night Live’s hilarious take on this whole
In addition to the presidential victory, the Republican Party also maintained control over both houses of Congress. So, what does that mean for the economy and investors? Well, little right now. President Obama still has over two more months in office before he hands over the keys to the Oval Office to President-elect Trump, and only then will we begin to see the implications of this
election start to play out. Particularly notable, based on Wednesday morning’s acceptance speech, we saw indications that the campaign version of Donald Trump may be different from President Donald Trump. He attempted to offer an olive branch to the many folks who didn’t support his campaign, while also promising to work with many countries abroad, all which was contrary to much of his campaign rhetoric.
So what do we know, and what can we expect right now? Based upon the tone of most of Trump’s campaign, we can bet that foreign trade will be a big focus of his new administration. The chances of the Trans-Pacific Partnership (TPP) being ratified seem unlikely now, and the North American Free Trade Agreement (NAFTA) may be in jeopardy, and could have negative implications for our trading partners, like Canada and Mexico. Additionally, emerging market currencies will be under pressure, affected by potential new trade barriers. Uncertainty over immigration policy will also influence domestic labor markets and therefore
production. Furthermore, with about 40% of US earnings coming from overseas, US-based multinationals could also face pressure.
On the more positive side of the ledger, tax policy could support growth, as corporate tax rates come down and hundreds of billions of dollars are repatriated within our borders. The Energy sector also may benefit from fewer regulations and an improved likelihood of fracking and pipeline projects. The prospects for Health Care stocks also may recover, as drug prices may have fewer
pressures, and the Affordable Care Act may be reformed. Additionally, Industrials and Materials could see a boost from increased infrastructure and construction spending.
Regarding interest rates expectations, it seems that despite heightened volatility the last couple of days, a rate hike in December is still likely. Future fiscal policy possibly could result in rising 10-year bond yields, as well. However, despite the fact that President-elect Trump has been highly critical of Federal Reserve Chair Janet Yellen, it is important to remember that her term doesn’t expire until February 2018, so any major immediate changes at the Fed seem unlikely at the moment.
Finally, now that the Republicans will control both houses of Congress for the next two years, we have to anticipate the Trump administration will try to accomplish as much as it can early on in his term. But considering the unconventional and, at times, often confusing campaign Trump ran, we will have to sit back and wait to see how policies are actually rolled out. Overall, although many people view Trump’s election as a surprise, we have to believe calm heads will prevail as his agenda becomes clearer in the months ahead.
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