Donald Trump is set to take office in January as the 45th President of the United States. His surprise victory caught many investors off-sides as pre-election positioning was for a Clinton win. As a result, the global stock, bond, and commodity markets have been volatile as investors reposition for the Trump Presidency. There are potential positive and negative implications for the economy and financial markets based on Trump policy.
On the positive side, Trump pledges are pro-growth and business friendly. Investors have responded by pushing up US stock prices. Trump wants to simplify the tax code by moving from six to three brackets. His plan also calls for cutting corporate taxes from 35% to 15%. Recall the US has some of the highest corporate tax rates in the world. Proposals to allow companies to Repatriate cash will encourage US companies to bring off-shore cash back home to reinvest in capital projects, buy back stock, or raise dividends. Promises to cut regulation will free up resources so businesses can grow. Lastly, the pledge to spend $1 trillion over 10 years to rebuild the US infrastructure will spur employment growth.
With change comes uncertainty. The biggest risk to markets is the risk of trade wars. Trump repeatedly took shots at countries such as China and Mexico on trade policy. Escalations of trade tensions would be viewed negatively by investors. Increased trade tariffs and protectionism can also back fire as many US companies sell around the world. This is a risk that needs to be watched closely over time. International stock markets, especially emerging markets, have seen price declines since the Trump victory due to these fears. In addition, since the election, bond markets have been weak. Expectations for higher growth and a potential uptick in inflation have bond investors nervous. If rates rise too much, it could be a headwind for the economy as companies and consumers have been addicted to low interest rates for borrowing. This could also knock the winds out of the sails that have benefited stock market investors.
Political beliefs produce very strong emotions. Initial market reactions to the election were charged with these emotions. As investors, we must be careful not to let behavior impact our portfolio. Discipline and adhering to the financial plan is more important. Markets will settle down. Over the next several months, we will get an idea of the course America will travel under President Trump. Keep in mind that the US economy is over $17 trillion. Politicians can only impact the markets so much. Instead it is each of us following our daily routines and spending on goods and services that have a much bigger impact over time.
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As Chief Investment Officer for Planning Solutions Group, Jon provides innovative investment planning strategies to our clients. He has over 15 years of experience in the financial services industry. Prior to joining Planning Solutions Group, Jon worked in the institutional market place. He provided investment advice to a client base consisting of large asset management and mutual fund companies, state retirement funds and hedge funds. His experience in the institutional market included Vice President of Institutional Sales for Deutsche Bank in Baltimore and Chicago. Prior to this, Jon worked as a research analyst for Croft-Leominster, an investment advisory firm in Baltimore. His focus was analyzing and recommending securities for inclusion in client portfolios. Jon is a Chartered Financial Analyst (CFA) charterholder. He has been recognized as a Five Star Wealth Manager, featured in Baltimore Magazine. He is also NASD Series 7 and 63 registered. Jon graduated from the Johns Hopkins University where he majored in economics. He lives in Towson, MD with his wife & two sons. To email Jon:firstname.lastname@example.org