Abandon All Assumptions, Ye Who Enter Here

Today is a perfect example of why we don’t try to time the market. Even if you got the election outcome right, even if you know that the pundits and the pollsters and the bookmakers would be horribly wrong, even if you were sure that Donald Trump would be the President Elect, it might not have helped you financially. That’s because the conventional wisdom was that a Clinton win would be good for the market and at Trump win would be bad. And for a while last night, that appeared to be true: at one point, Dow Jones Industrial average futures were down 800 points. But right now, the Dow is up 250 points. So much for market predictions!

Non-US markets aren’t doing quite as well, with emerging markets down about -3.1% in dollar terms and developed markets up a mere +0.2%. Bonds are getting creamed: the US 30-year Treasury bond yield is up 25 basis points to 2.87%, well above its July low of 2.1%. Commodities including oil are rising, mining stocks are soaring (Freeport McMoRan is up nearly +8%), and most drug stocks are up big as well (Pfizer over +8%). The dollar, which sank almost -3% against the Yen last night is now up against most major currencies, and the Mexican Peso is down -8.3% against the US dollar.[i]

All of these short‐term moves actually make sense to us, based on what we know about Trump. He plans to lower taxes and increase government infrastructure spending, which should boost the economy overall, cause interest rates to increase and be good for the stock market. His antipathy to regulation should also be an economic boost, as we don’t expect to see many new regulations over the next 4 years and perhaps a rolling back of some existing ones. This latter policy is behind the spike in drug stocks, as price controls seem to be less of a concern than they would have been under Clinton. And the superior relative performance of the US market reflects money coming back after being drained over the past couple of weeks, likely much of it from overseas.

Longer term, we could see an acceleration of global economic growth and gradually increasing interest rates both within and outside the US. We expected this to happen anyway, but a Trump presidency might accelerate this process. Better growth overseas and a smaller interest rate differential between US and foreign bonds should put a cap on the US dollar, providing a tailwind for non‐US investments.

Economically, the biggest potential negative of a Trump presidency is where he really stands on trade. Is he the protectionist he claimed to be during his campaign? If so, that would put a damper on global trade and create some headwinds to improving economic growth. Our feeling at this point is that his actual views and actions will be far more tempered than his campaign rhetoric. Similarly, while still possible, we think there is little chance of a wall being built between the US and Mexico, making the dive in the Peso a potential buying opportunity.

In subsequent newsletters, will comment more on how the changing political landscape is affecting our portfolio positioning. But the good news is that we had already anticipated accelerating economic growth, rising interest rates and somewhat higher inflation, and have been positioning portfolios accordingly throughout the past year.

We know that at least half of the electorate is very unhappy with the outcome of this election, and there are certainly reasons for concern, many of them non‐economic. But try not to let your political or social views drive your investment strategy. There were many who stayed away from equities because they don’t like President Obama and think his economic policies are hurting the economy. But by staying on the sidelines, they missed out on a major bull market in stocks. For those on the other side of the political spectrum, don’t let your antipathy toward Donald Trump cause you to miss out on what could prove to be an excellent few years for investors.
In the words of the great Douglas Adams: Don’t panic.

Dr. Ken Waltzer, MD, MPH, AIF®, CFA, CFP®
Managing Director, KCS Wealth Advisory
Laura Gilman, CFP®, PFP, MBA
Managing Director, KCS Wealth Advisory
Adam Bragman, CFA
Director of Investment Research, KCS Wealth Advisory

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