Similar to the sentiments that drove June’s Brexit referendum results, Donald Trump’s election as President of the United States was driven by voter dissatisfaction with the current state of the U.S. government. The result, at least in the short term, is market uncertainty. Markets retreated today from their initial sharp losses, due in part to Trump’s conciliatory tone in his acceptance speech as he tried to unite Americans and calm investor nerves.
Market volatility is common in the first few days after election results. In 2012, although the result was much less surprising, markets still fell following Barack Obama’s win. It will take time for the dust to settle as markets digest the news.
What Does This Mean for Your MD Portfolio?
We are not expecting to make any additional major changes to MD funds or to your investments as they have been positioned with the election result in mind. We believe that the U.S. is still a relatively attractive investment opportunity with strong economic fundamentals. As a result, we maintain an overweight position in U.S. equities. The underlying strength of the U.S. economy, combined with corporate earnings and dividend growth, and consumer employment and spending trends, will continue to create value and drive market returns.
Trump’s election does not change our long-term fund management strategy. We may find opportunities in select stocks, currencies or corporate credits as a result of a potential market shuffle, but we don’t expect our exposures to shift dramatically. In the longer term, certain Republican changes to policies such as the North American Free Trade Agreement (NAFTA) may influence the relative valuation of certain investments that are reliant on U.S. exports for revenue growth. We’re prepared for further evaluation and some investment changes, if necessary.
Global Economic Implications Under a Trump Presidency
Trump’s strong protectionist trade approach expressed during the election campaign could have negative effects on global economic growth, including slower growth and higher inflation. In particular, Trump’s stance on Mexico and China, and his suggestions to introduce tariffs and duties, could worsen trade relations with both countries. We will continue to follow developments in the upcoming months as Trump’s global economic policies and plans take shape.
Will the Federal Reserve Raise Rates as Planned?
Expectations that the Federal Reserve Board will raise rates in December are diminishing, which may have some impact on interest and growth rates in general. Uncertainty about the Fed’s leadership could continue if Trump maintains his critical views of the Fed and its monetary policy over the next weeks to months.
Sectors That Could Benefit From Trump’s Win
Based on his campaign platform and promises, several key sectors may benefit from a Trump victory, including:
- Industrials: Trump has promised increased infrastructure spending on major projects, which could drive job growth and benefit companies across the materials, industrials and technology sectors.
- Healthcare: The outlook for the healthcare sector is more positive under a Trump government, with a lower probability of the introduction of significant changes in drug pricing legislation that would negatively affect pharmaceutical and biotechnology companies. It remains to be seen whether the Republican’s promise to repeal the Affordable Health Care Act will come to fruition.
- Energy: Trump appears to be a greater advocate for U.S. energy exploration than was Secretary Clinton, with his proposals including fewer regulations and greater energy independence for the U.S.
Looking Ahead: Focused on Company Fundamentals
We remain focused on active management in our MD funds and pools. We are bottom-up, fundamental stock pickers, focused on finding good companies. Our ability to value these fundamentals has not changed.
While we may see some companies improve their profits and others deteriorate as a result of potential new policy implementation, the vast majority of companies will not significantly alter their growth strategies based on the election result.
The intrinsic value of the companies we invest in is unlikely to be affected by one-off market events. While we will continue to watch market reaction closely, we believe that the shift away from election uncertainty will help markets focus their attention back to company fundamentals, and will create investment opportunities for long-term investors.
If you have questions about how you or your financial plan may be impacted, we encourage you to contact your MD Advisor for more information.
Donald Trump Elected 45th President of the United StatesIn a remarkable upset, and after a highly contentious and unpredictable presidential campaign, Americans ultimately voted in favour of Donald Trump—a result that seemed unlikely when the campaign began in June of last year. Taking nearly all key battleground states, from Florida and North Carolina to Ohio and Pennsylvania, Trump’s victory represents a shakeup of the American political establishment. Republicans will also retain control of the Senate and the House of Representatives.
What Does This Mean for Your MD Investments?
At MD, our investment management process factors in all known risks to financial markets.
We expect short-term market volatility as financial markets and global investors digest the news of Trump’s win. However, despite the surprising outcome, we don’t expect the election result to have an impact on our portfolios in a significant way over the long term, and have no plans to make significant changes to MD Funds and your investments at this time. As was the case with June’s Brexit referendum, we have taken proper portfolio positioning precautions in the short term to withstand potentially adverse market reactions. From an asset allocation perspective, we are overweight in U.S. equities as we believe the U.S. is fundamentally better off relative to other regions. Relatively, the U.S. economy is expected to remain solid, earnings sentiment has been trending positively and U.S. banks are well positioned.
Our analysis of the election results and the market reaction will be posted today, as we continue to watch the situation.