US Presidential Election

Our initial thoughts on the result

Donald Trump has been elected the 45th President of the United States.  Much like Brexit, this was widely unanticipated by political commentators, pollsters and investors alike, and the initial market reaction to the result was sharply negative (as can be seen in the below chart of the S&P 500 futures).

However, Mr. Trump’s acceptance speech was conciliatory in tone and gave an indication that he aims to be inclusive. The market appeared to take the content and tone of the speech well: from when he began speaking to the time of writing the S&P 500 Futures have rebounded from c.2,040 to 2,108, a gain of 3.3% – see the chart below.  UK equities, having initially fallen, are now up c. 0.7%.

Source: Bloomberg, Waverton

Perhaps as significant as the Trump presidency is the fact that the Republicans have taken control of both the Upper and Lower Houses in Congress.  This will be appreciated by the US stock market (at least in the short term) because the Republican Party is fundamentally pro-business. 

As we look to the future there are obviously considerable uncertainties, not least Trump’s policy on trade and tariffs, where during the election campaign the rhetoric looked very protectionist.  A brake on world trade would not be good for long term wealth creation and is probably the biggest global economic threat of a Trump presidency. That said, experienced Republican politicians will be well aware of the pitfalls of populism, and it will be interesting to see who Mr. Trump appoints as his advisers.  A key question for the next few weeks will be the direction of monetary policy. The likelihood of an interest rate rise in the US next month fell this morning from about 80% to c.50%.  The very public criticism by Mr. Trump of Janet Yellen (who heads the US Federal Reserve) increases risks surrounding this.   Also, how will Trump pay for his intended boost to infrastructure? What will foreign policy look like?  All of this will have implications for the US dollar, likely to become something of a meter through which the market will evaluate a fledgling Trump presidency, just as sterling has served as the lightning rod for Brexit.

With all this in mind, we expect some volatility in the short term, and we do not believe we are looking at a Brexit-like buying opportunity because there will be no ‘instant relief’ from many of these uncertainties like there was after June 23rd (e.g. the Bank of England’s cut in interest rates, the devaluation of Sterling and new Prime Minister). However, given the Trumpian rhetoric around infrastructure, protectionism, defence and corporate cash repatriation, there will undoubtedly still be opportunities to make money through targeted sector and stock selection. Portfolios have generally done quite well this year on the back of good stock selection and a mildly pro-risk stance – but we do hold some cash and will look to deploy it as opportunities arise and the outlook becomes clearer.

Risk Warnings

The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions.  The information provided does not constitute investment advice and it should not be relied on as such.  All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.

Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise.  Capital security is not guaranteed