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.

Download the full PDF

The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this weekly review is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. Past performance is not indicative of future results.

Information obtained from third party sources are believed to be reliable but not guaranteed. Envestnet|PMC™ makes no representation regarding the accuracy or completeness of information provided herein. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.

Investments in smaller companies carry greater risk than is customarily associated with larger companies for various reasons such as volatility of earnings and prospects, higher failure rates, and limited markets, product lines or financial resources. Investing overseas involves special risks, including the volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. Income (bond) securities are subject to interest rate risk, which is the risk that debt securities in a portfolio will decline in value because of increases in market interest rates. Exchange Traded Funds (ETFs) are subject to risks similar to those of stocks, such as market risk. Investing in ETFs may bear indirect fees and expenses charged by ETFs in addition to its direct fees and expenses, as well as indirectly bearing the principal risks of those ETFs. ETFs may trade at a discount to their net asset value and are subject to the market fluctuations of their underlying investments. Investing in commodities can be volatile and can suffer from periods of prolonged decline in value and may not be suitable for all investors. Index Performance is presented for illustrative purposes only and does not represent the performance of any specific investment product or portfolio. An investment cannot be made directly into an index.

Alternative Investments may have complex terms and features that are not easily understood and are not suitable for all investors. You should conduct your own due diligence to ensure you understand the features of the product before investing. Alternative investment strategies may employ a variety of hedging techniques and non-traditional instruments such as inverse and leveraged products. Certain hedging techniques include matched combinations that neutralize or offset individual risks such as merger arbitrage, long/short equity, convertible bond arbitrage and fixed-income arbitrage. Leveraged products are those that employ financial derivatives and debt to try to achieve a multiple (for example two or three times) of the return or inverse return of a stated index or benchmark over the course of a single day. Inverse products utilize short selling, derivatives trading, and other leveraged investment techniques, such as futures trading to achieve their objectives, mainly to track the inverse of their benchmarks. As with all investments, there is no assurance that any investment strategies will achieve their objectives or protect against losses.

Neither Envestnet, Envestnet|PMC™ nor its representatives render tax, accounting or legal advice. Any tax statements contained herein are not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Taxpayers should always seek advice based on their own particular circumstances from an independent tax advisor.

© 2016 Envestnet. All rights reserved.