Just like in investing, last week’s Presidential election reminds us that unexpected events do occur. As the election results became clear, U.S. stock market futures suggested there would be a steep decline in US. Stocks the next day – and that prediction fell short as well.
It is highly unlikely that this is the end of the world (as some may feel personally), nor is it a radical populist revolution which will materially increase opportunities for certain populations. From the perspective of financial-asset prices, Trump’s proposals have been decidedly mixed. Scuttling trade agreements and instituting tariffs would appear to cause harm. So, too, would prohibiting U.S. companies from moving their operations overseas. On the other hand, both Wall Street and Main Street businesses would applaud the regulatory relief that looks to be coming their way. Both personal and business tax rates are likely to decline; that would help, too.
Analyzing the investment implications of a Trump presidency involves much more than examining a platform, deciding which parts will be acceptable to the opposing party, and then determining the outcome. The U.S. is currently experiencing the second longest bull market in history. Regardless of whoever was elected to the Oval Office, there will likely be a significant stock market decline during their term. And that bear market will be much like the last one; swift and unnerving. But out of it will emerge, completely unforeseen, the next bull market, “born on pessimism, grown on skepticism, and maturing on optimism” (as the famous quote by Sir John Templeton goes). Over the long run, the U.S. economy is likely to remain one of the strongest globally no matter who resides in the White House.
Yes, there is uncertainty, but investing is always about navigating in a sea of unknowns. Bond investors must grapple with how interest rates will change and whether bonds will be fully paid off at maturity. Equity investors’ concerns are mainly about how future earnings of corporations will grow or decline. Investing is about being paid appropriately for the risks taken – a strategy best implemented through globally diversified portfolios. If we were to take no risk, the return would be 0.25% (return on the one month U.S. T-Bill), which is a negative return after inflation.
While uncertainty has increased, it remains important to not let our personal political views distort our ability to stay the course towards our long-term goals and lose sight of what is most important to us in life.
Barry N. Mendelson, CFP | Richard P, Clarke, CPA, PFS | Ryan K. Kosakura, CFA | John L. Davis, CFP
Sources: Morningstar, Inc. and Pinnacle Investment Management.