Election Results Are In… Now What?
Our job as investment advisors is to find winning areas of the market for our clients. This means we have to divorce ourselves from personal political feelings and adapt to the ever-changing environment around us, such as choosing a new president-elect. Regardless of who wins a presidency and what side of the aisle he or she represents, the market will typically have winners and losers. It is our job to methodically find the winners.
We strongly advise clients not to overreact to the short term noise of what may, or may not, happen now that the election is over. The fact is, we do not know right now what was campaign rhetoric vs. policy issues that will be followed up on. Instead, we are focusing on strategic patience.
As you recall, Britain voted this past summer to exit the European Union in a very close vote. It sent the markets into a panic as investors thought all ties would be cut in a dramatic fashion without the need for parliament oversight. Our advice to our clients was to pause and wait to digest and make decisions on the proper information. As it turns out, the parliament is required to provide oversight, which likely means the exit will be much less severe than some expected and will probably have more negotiated terms than severing all ties. The markets bounced back almost immediately.
Our advice is the same now that the election is over. While the vote is in and we have a new president-elect, nothing else has changed in the past 24 hours. Our company fundamentals have not been altered, our economy has not blown up and there are no new policies being pursued overnight. We will analyze any new policy strategies as they are submitted, and if we believe a portfolio adjustment is needed, we will connect with you about it.
This will be a bumpy ride, no doubt. The dollar and interest rates are something we will be watching very closely. There will be consequences, good and bad, for all policy decisions. The bottom line is we do need some fiscal policies enacted so we can take the pressure off the Fed. The Fed has had to keep interest rates at an unprecedented low level for a scary length of time. This is quite unhealthy for our economy, and change in fiscal policy could very well help that situation if done properly.
In the meantime, our investment committee will be diligently looking for areas to lean into so we can reap the benefit of any economic changes that may occur. Some of these areas could be defense spending if we build up our military, oil if the Iran deal is taken back, biotech and big pharma since Hillary didn’t win, and then infrastructure if they put building into action.
We believe one of the largest beneficiaries of this election may be financials. Much of the economic plans President-elect Trump has discussed will likely generate higher inflation through job growth and infrastructure building. Anyone dealing with interest rates will be happy about this as was reflected by the 10-year Treasury popping up to 2% this week. We believe a Trump presidency will have short- and near-term economic benefits to the economy in 2017, with the likelihood of some revisions of the Affordable Care Act, changes to corporate tax rates, repatriation of foreign corporate profits and significant infrastructure spending. Any problems with these policies will come to fruition years later, and we would adjust as such.
Please contact us if you have any concerns about your portfolio.
Until then … strategic patience.