Let’s dispense with the obvious: Just about every major poll, betting market, and “news” outlet heavily discounted this outcome. The (presumably) smartest people on the planet got it all wrong, proving what we’ve said forever – nobody can reliably predict the future. On the heels of Brexit, Donald Trump’s election to the presidency marks the second significant populist outcry through the ballot box.
For a few days, nerves will likely be raw on both sides. We encourage readers to ignore the narratives suggesting that this election proves the US is filled with gun crazy, racist, misogynistic xenophobes. National elections are – at their core – referendums on perceived economic well-being and expectations for future well-being. Instead, let’s look forward to discern what we can about how a Trump presidency will affect the markets, the economy, and our country.
In the near term, policy uncertainty will likely lead to some market choppiness. This isn’t at all unusual. But the focus will now shift away from campaign rhetoric to policy formulation. As Mr. Trump begins to assemble his Cabinet and other team members, we can take some comfort that many of the policy items discussed on the campaign trail (like trade policy) cannot be implemented without bi-partisan support. The checks and balances in our political system aren’t perfect, but they do work. Actual policy implementation and campaign rhetoric historically differ by a wide margin. We will witness that as the way forward is mapped out. As certainty returns, market choppiness will moderate.
Zooming out to the domestic economy as a whole, let’s not lose sight of the fact that the economy Mr. Trump will inherit is essentially healthy. The stimulative fiscal initiatives of a Trump administration should lead to further economic expansion. If the policy initiatives laid out in the election are generally followed, investments in infrastructure, energy and technology will continue to carry economic growth forward. As for the Federal Reserve, they will take their cues from the unfolding events and the continued momentum of the economy. We will learn much more about this in the coming days and months. In reference to the rhetoric around the Affordable Care Act, it is far too early to tell whether modification or repeal will be the way forward. Time will tell.
So, what – if anything – should investors do?
No new news here. Diversification is the key. Clients should continue to maintain a balance between defensive allocations (think, “preserve what I have”) and offensive assets (“long term growth of my portfolio”) As last night’s results prove, the short term future direction of things is fundamentally unknowable. The notion of going to cash or doubling down presumes you know something about the future which is fundamentally unknowable. As long as economic indicators suggest a continued expansion, clients should stay the course. We will update this commentary as soon as we have relevant details to relay. In the meantime, please don’t hesitate to call us if you have any questions or concerns. We are confident our investment philosophy and approach for clients is appropriate for the current environment and encourage clients to take some comfort from that.
Your First Coast Wealth Advisors Team