Trump's victory – impact on long-term investments
So, the Donald has done it. Much to the confusion of the pollsters, the liberal media and the watching world, Donald Trump has done what few thought possible and will be the next President of the United States. He was aided by a very unpopular democratic candidate.
During the night, markets reacted violently. Many Asian markets were down sharply, gold was up and the US dollar was down.
However, much like the other seismic political shock in the summer, Brexit, the initial pandemonium was replaced quickly by pragmatism and the markets have largely recovered. When the results first started appearing, the Dow Jones futures indicated that when that stock market opened, it would do so about 8% down. In actual fact as I write this, it is down about 0.33%. Greater daily swings are usual, in other words, nothing out of the ordinary has happened today.
When Brexit happened, those that panicked crystallised losses and missed the sharp bounce a few days later, whereas those who remained invested bounced back quickly and have seen gains since. The benefits of long-term investing and a well diversified portfolio are evident.
President-elect Trump isn't stupid, he knows how ingrained the stock markets are in the American psyche and despite the previous rhetoric he will want to ensure markets remain calm. He already appears conciliatory towards Hilary Clinton. Some sectors will be seen as winners, such as healthcare, banking and construction. However, he has also talked about a more protectionist policy towards trade, not necessarily good for the health of the global economy.
The key question though is the impact on long term investments.
President-elect Trump has vowed to put American interests first and rebuild crumbling infrastructure. As a frequent traveller to the US, I can attest to the fact that roads, bridges, airports need rebuilding. The bill will run into trillions of dollars. If he even gets half of what he wants to do on the infrastructure front done, there should be a big boost to US growth. This in turn will push inflation up, thus forcing the Federal Reserve to attempt to normalise interest rates. I previously thought December would probably see the next rate hike by the Fed, I think Trump's victory makes this less likely.
President-elect Trump also appears much friendlier towards Russia and Vladimir Putin. Whilst many other world leaders have been fairly negative in their comments today, Putin has been warmer. In a geopolitical sense that is a positive as tensions have risen strongly over the last few years.
Another boon for the UK is that Trump has made more positive statements about Brexit and the chance of the UK getting a trade deal with the US; don't forget Obama said the UK would be at the back of the queue.
So, the unthinkable has now happened twice in 2016, roll on the Italian referendum in December for the next.
However, for long-term investors the key is not to panic. Share prices, whilst not cheap, are also not expensive in my view and with inflation and rates still at historically low levels the case for owning equities remains strong.