Following last week’s surprising US Presidential election result, many political commentators have sought to try (and failed so far) to analyse the short and long term impact.
This interim market commentary seeks not to evaluate the new President Elect’s suitability for the position, but provide a reminder of the value of portfolio diversification, long term investing and patience.
Some Initial thoughts
I have said it before (and little doubt I will say it again) – Investment Markets do not like uncertainty. With President Elect Trump we have considerable uncertainty – he has neither held elected office nor has he been forthcoming on policy details.
This uncertainty has spooked investors in the immediate aftermath of the election and will probably continue to do so in the near term. The US Dollar has fallen, as have many equities across the globe, albeit reactions have perhaps been more muted than first feared.
More important than the initial reaction, however, is the longer term impact for investors.
Long term investor concerns
There are certainly areas for concern – to highlight a few:
- Although checks and balance are likely to preclude his most extreme protectionist policies, as President, Trump will hold a number of unilateral powers to invoke Trade Tariffs.
- Reducing taxation should in theory boost private sector expenditure but there is concern that the impact will be negated by the skew toward more affluent households. (Some commentators have suggested that 20% of the proposed tax cuts will go toward the wealthiest 0.1% of households – a demographic who typically do not spend additional income).
- There are concerns over the future of the Chair of the Federal Reserve. Janet Yellen has generally been considered to be a safe pair of hands at the Fed but she came in for repeated criticism by Trump during the election. An early departure would add to the existing uncertainty.
The news is not all bad however…
- The US economy is in decent shape. Economic growth has been picking up, the unemployment rate is low, wage growth is picking up and consumer confidence remains strong.
- The uncertainty created by Trump’s victory significantly reduces the likelihood of an increase in interest rates by the Federal Reserve in December.
- A major infrastructure programme (as suggested in his acceptance speech) would likely support economic growth.
- A reduction in Corporation tax from 35% to 15% would clearly have benefits for corporate America.
- Policy change may be less dramatic than suggested by President Elect Trump in spite of the Republican’s clean sweep of the House of Representatives, the Senate and the Presidency. The Republican “establishment” are likely to be concerned by unfunded tax cuts & spending increases and may act to curb Trump’s actions.
What can you do to position your Investment Portfolio?
There can be little doubt that we will experience heightened volatility as markets struggle with continued uncertainty. However, it is important to remember that we invest for the long term in pursuit of long terms goals & objectives. Ultimately this period of heightened volatility will come to pass and there will of course be opportunities for investors with an eye on the longer term.
America will continue to present opportunities to investors (This is after all a land of innovators that has given us Apple, Google & Facebook) but there are clear and present risks. As always, those investment risks are best mitigated by a well-diversified portfolio. A well-diversified portfolio should have exposure to a wide range of asset classes, sectors & countries in order to provide protection against any particular investment risk. As grandmothers have said for generation after generation, “don’t hold all your eggs in one basket.”
If you would like to discuss your investments please do speak with your usual Financial Planner or send an e-mail to firstname.lastname@example.org.
About Menzies Wealth Management
Menzies Wealth Management is a subsidiary company of the Menzies Group, providing independent financial advice to both private and corporate clients. We are independent of all financial institutions.
This document is intended for general information purposes only and does not constitute advice. It is based on our current understanding of legislation, which may be subject to change. Menzies Wealth Management can accept no responsibility for any loss resulting from acting or refraining to act as a result of any material in this publication. Past performance is not a guide to future performance and the value of investments may fall as well as rise. Personal taxation will depend on individual circumstances. The Financial Conduct Authority does not regulate taxation and trust advice, or some types of mortgage.
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