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US Election observations
Once again election polls and markets have been confused by voters reaction to major events. The UK Brexit vote in June also saw voters turn against the establishment.
The result of Donald Trump being elected as President confirms that voters are looking for change and not prepared to accept the established view.
Markets do not like uncertainty and we have witnessed severe market movements as investors come to grips with what the result means. Trump, largely an outsider to politics before this election, has surprised the majority of media and markets with his election win. Markets have quickly reacted to the result and have more than recovered the initial losses following the immediate announcement of his victory.
We anticipate that market volatility to remain high as Trump announces his policies in more detail over the coming months. Trump does not take office until 20 January, 2017, but markets will seek to pre-empt his intentions.
Major issues likely to create uncertainty revolve around his views on global trade and how he interacts with world leaders.
A big advantage he has in delivering his policy reforms is that the Republican party will control the Congress with Republicans having majorities in both the House of Representatives and the Senate.
The US legislative structure provides many checks and balances on politicians and we would not expect to see an abuse of power.
The Trump platform is likely to be friendly to business and provide a pro growth environment for the US economy. We are likely to have to wait for many weeks or even months to see the major changes from this election. Much will depend on the team of politicians and business people he surrounds himself with.
Based on the key issues on which Trump campaigned, we would expect to see:
- tax reform, particularly reducing the corporate tax rate
- fiscal stimulus, with a key focus on investing in infrastructure
- oil markets continue to recover, given Trump’s favourable view of fossil fuels
- healthcare providers to be impacted by the repeal of the Affordable Care Act (ObamaCare)
- the banking sector to find some relief, given Trump is strongly against new regulations within financial services.
Should these policies start to be implemented then we could expect inflation in the US to increase to the 2+% level as wages growth impacts.
Initially, we have been impressed by the way Trump has responded to his election victory but need to wait to see how his administration manages the political processes when implementing his policy wishes. Expect markets to remain volatile as policies are scrutinised by the market and media. For now, markets have received his election win positively.
Rob McGregor
11 November 2016
