Following the initial downward reaction to the surprise US Election result, markets have steadied, focusing on the positive aspects of a Trump presidency. Specifically, his policies are considerably more inflationary than Hilary Clinton’s and are likely to provide a fiscal spending boost to US growth through a focus on infrastructure investment and tax cuts. In addition, the proposed reversal of financial regulation and repatriation of trillions of dollars currently held overseas by US companies would also be inflationary. As a result, money has flowed out of government bond markets - an asset class which typically performs well when expectations of economic growth are low. Investors are anticipating that if inflation takes hold, interest rate rises are sure to follow closely and bond prices will fall.
However, a lack of clarity during the course of his election campaign means that there are still many question marks over what policies Trump will adopt. On the one hand, his actual presidential policies and style may be somewhat different from the inflammatory rhetoric of his campaign. On the other hand, enforcement of trade barriers and a protectionist agenda, such as discontinuing involvement in the North American Free Trade Agreement (NAFTA), would be viewed negatively by markets and the impact on global growth could be widely felt.
Ultimately, we will have to wait and see what a Trump presidency brings. Either way, we set our portfolios up to be robust and stand ready to take advantage of any swings in the market, or individual investments, that provide attractive long term opportunities.
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