CKBlog: The Market

Wednesday, November 09, 2016

Trump Victory and the Markets

As the pundits say, elections have consequences. But then again, they’ve said many things that didn’t come true during this election cycle. Like Brexit, almost everyone’s prediction on the results of the US election were wrong on all fronts; most notably, very few predicted the Trump victory and the Republican control of both houses of the US Congress. It is hard to read the tea leaves when there have been few policy pronouncements by Trump or his campaign. As in the US election eight years ago, the American voters wanted change and have spoken loudly.

Short-term, it is more than likely that Trump and the Republican Congress will attempt to undo many of the executive orders which they disagree with. Longer term they will try to unwind many of the more onerous regulations promulgated by the Obama Administration, will attempt a revamping of “Obamacare” and will promote lower taxes on corporations and individuals. We deliberately say try, attempt, and promote, because from a governing point of view, the Democrats in the US Senate can filibuster bills unless the Republicans put together a 60-vote coalition to override the Democrats’ efforts to block legislation. The Republicans were quite effective in doing so over the last 6 years. However, in general, Trump and the Republicans will pursue a pro-growth strategy, which should be bullish for equity markets and bearish for fixed income markets.

Changes to the US foreign policy stance are less obvious and will likely stay somewhat opaque. The devil is in the details. Unfortunately, we will have to wait and see how things progress here (or not).

So, what does this mean for your portfolio? As you might expect, the CastleKeep team was up and communicating well into the wee hours of the night—I am glad we recently bought a new espresso machine! We were monitoring the markets closely and were prepared to act if necessary. We also were hearing and continue to hear from our managers. But as so often is the case, and as we have seen thus far today, sometimes the best course of action is to take a deep breath and trust the process. Sound familiar? 

We take great pride in the construction of our portfolios. While not immune to large swings in the market, they are built with specific objectives in mind—many of which are long term. It is impossible to control the short term so we prefer to spend our energy on things we can control or influence. In that regard, it is our job to build diversified portfolios which are designed to meet goals, not “beat” overnight S&P 500 futures markets.

As we write this, it is hard not to be impressed with the deepness of the equity markets and the lack of panic (which seemed to reign overnight). There will be winners and losers going forward, but that is always the case. 

Elections have consequences. We will continue to be vigilant and concentrate on delivering the finest customer focused investment management to you and your family.