In a spectacularly surprising result, and contrary to all the pollsters, Donald Trump was voted in as the next American President last night our time; the Republican Party also retained control of the House and the Senate, providing Donald trump a slim margin of support in Congress. Like Brexit, US citizens voted for change and got it; there will be much discussion over the catalyst for this change but rising inequality, stagnant wages, and a general disenchantment with establishment and mainstream politics have been blamed.
There will be much debate on the reasons in the weeks and months ahead but importantly we consider the economic and investment implications of the decision, and importantly how much of the policy rhetoric announced during the campaign as a sales pitch will be, compared with the pragmatic approach to governing. Donald Trump made much of the fact that he is not a politician but a businessman, in office a lot will be considered following the announcements of the politicians he will appoint to administer his term of office.
Generally speaking the Trump policies of fiscal stimulus with spending on defence and infrastructure and a reduction to non-defence discretionary spending; tax cuts in the top marginal tax rates from 39% to 33% and the company tax rate from as high as 39% to 15%; and reduced regulation, are beneficial in the short term but there is concern that they will lead to increased budget deficits, higher inflation, higher interest rates and a stronger $US in the long term. Foreign policy is the one area where the economic world will be watching to determine whether political pragmatism will out-weigh the rhetoric. What is obvious is that Donald trump wants to reposition alliances and review trade agreements to put America first, the degree to which this will be enacted and the resultant geopolitical and social tensions of his protectionist policies are yet to be determined.
From the markets perspective, much like Brexit, we saw an immediate and significant selloff on the first signs of a Trump victory however the markets recovered quickly finishing significantly positive during the following trading session. As with many significant geopolitical events we do expect continued short-term volatility. From an investment perspective we believe the first priority is to rationally evaluate your chosen investment strategy, consider it in light of the primary economic and market indicators, then stick to it and don’t get caught up with the crowd during the short term roller coaster of rising and falling markets; it is important to realise that in the short term markets are often moved by irrational and erratic investor behaviour.
As always clients are encouraged to call the office on 02 9930-6100 and speak to me if you have concerns or simply want to chat.
As with any investment decision one should seek advice from your professional adviser before investing!
Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.
