Trump won ... it happened ... so now what?

Does this election really impact us as investors? Yes. The ASX and the world markets will be affected as Trump's campaign policies go to the heart of globalisation.

US share indexes rose 1% on bets the clean sweep of the White House and Congress will end the political / policy deadlock of the last eight years.

The jump in part was due to the uncertainty of which candidate was going to win. Markets dislike uncertainty. This has now be resolved. The jump has also been linked to the prospect of an inflation spike based upon Trump’s infrastructure investment and commentary around slashing company taxes – down to 15%. 

In comparison, Australia’s company rate will be 28.5% at best, 30% for the norm. A massive uncompetitive difference. 

Trump has also threatened to impose tariffs on foreign goods and to cut the amount of immigration (foreign workers). Both positions have the potential to push up prices on imported goods and also domestic wages – an inflation breeding ground.

Sectors to watch

Individual sectors like healthcare and banks rose on the Trump win. So too infrastructure and energy sectors. Stocks involved in foreign trade and the offshoring of production plants suffered. Defence spending will be a sector that will benefit from a Trump victory.

The relationship between the White House and the Federal Reserve needs to be monitored, as Trump has not been supportive of the low rates that Dr Yellen has currently in place. Perhaps the December rate hike will be a given?

Budget consequences

Unfunded spending by the President Elect will impact the budget deficit which will have its own consequences further down the track, but for now, the euphoria of the spending promises has helped the US psyche to some degree.

It will be interesting if the consumer starts to go out and spend again or whether the "stay at home" theme that has been highlighted in the latest US quarterly earnings announcements will continue.

Volatility short term

Volatility will be a short term outcome, as most institutional money managers were talking of a Clinton win. It will take time to unwind positions and re-establish new winning positions based on a Trump presidency.

Volatility may mean that treasuries (bonds) and gold will benefit from the safe haven trade. The US dollar may also move around, in both directions, whilst markets absorb the Trump’s lack of detail around trade policy.

What does this mean for the general investor?

A risk-off mood may develop in the short-term, impacting our currency and equity market, leading to money flows into bonds and gold.

Heading into 2017, as more policy detail is released, healthcare, infrastructure, financials and aerospace sectors in the US may gain good support.

We need to remember that the US currently is at a top of a business cycle compared to the rest of the world, so valuations are higher for these companies. There may be opportunities to acquire quality companies at lower valuations during this time of volatility.

The above highlights the need to be ‘stock selective’ rather than ‘market buying’ in this environment.

More information?

For more information on the opportunities that the US election has created and what this means for you, please contact Ian Walker on 07 3002 2699.