Archived News 09/11/2016
Trump wins the US Presidential Election – What now for markets?
Against eve of election polling predictions, Donald Trump has won the keys to the White House and will be inaugurated as the next President of the United States on the 20th January 2017.
During his campaign for the White House he espoused numerous radical policies, many of which will not be enacted given real world actualities and the need for his plans to be supported by the wider Republican Party. Furthermore, the Republican majority in the Senate is not strong enough to block Democratic Party filibustering.
Understanding his workable priorities is critical. What is clear is that his number one priority is ‘putting America first’...
Understanding his workable priorities is, therefore, critical. What is clear is that his number one priority is ‘putting America first’, but how this in enacted in economic and security terms remains highly uncertain.
Nonetheless, during his acceptance speech Trump appeared to prioritise a significant increase in domestic infrastructure spending in order to boost economic growth and job creation. This will appeal to his core vote. Furthermore, resistance in the Republican Party to a cut in the corporation tax rate and the repeal of Obamacare is likely to be limited. In order to achieve these outcomes, however, Trump may need to drop significant elements of his more outlandish protectionist and immigration proposals.
In isolation an increase in infrastructure spend and a reduction in the corporation tax rate will support US economic growth and promote further wage inflation.
In isolation an increase in infrastructure spend and a reduction in the corporation tax rate will support US economic growth and promote further wage inflation. If this comes to pass, longer dated US Government bond prices will fall, yields will rise and investors will start to anticipate a steeper trajectory in interest rates rises. This will favour economically sensitive stocks relative to expensive stable growth companies (known as bond proxies) which have performed strongly since the financial crisis of 2008/9.
It will be instructive to observe whether Trump’s tone concerning his protectionist and immigration policies changes markedly in the weeks and months ahead. If it does, a positive economic case can be made. However, if it doesn’t, then geopolitical and economic risks rise materially.
Chief Investment Officer