I said a few months ago that: “The current market is certainly a headscratcher and is difficult to sort out”. That certainly hasn’t changed much in that last few months or weeks, and the results of the election have certainly not helped either.
What has Happened?
Donald Trump has been elected as the 45th president of the United States, based on results announced by US television networks early Wednesday morning. In the congressional elections, the Republican Party has again secured control of both the House of Representatives and the Senate. The combination of a Trump presidency and a Republican-controlled Congress suggests that the new administration may initiate major changes to US fiscal policy and international trade deals, which are likely to increase uncertainty about economic growth and to provoke market instability in the coming months.
Global markets were volatile in reaction to the US election results. As Trump’s victory was confirmed, S&P futures fell sharply, while European and Asian stocks dropped. However, by midday in Europe, equity market anxiety had eased somewhat and declines of US stock futures had moderated. As of this writing – about noon, EDT, the US Equity Markets are higher with the DJ Industrial Average at 18,500.
What Should Investors Think About?
Trump’s election has created significant uncertainty for investors. It will take time before the world has a clearer picture of how he plans to steer the government, and what will be the short and long-term impact on the US economy and markets. During this period of uncertainty, we think it’s important for investors to take a wider perspective on what drives markets and securities:
Short-term volatility will most likely continue. This may not persist for the long-term, and in the coming months, we should get a better sense of whether a Trump presidency will indeed lead to major changes in US policy that could affect markets dramatically and that would require strategic changes to portfolio allocations.
Focus on fundamentals and broad market drivers. Stock and bond markets are influenced by many factors that aren’t always directly driven by presidential policies. Government finances, central bank policies, oil prices and currency changes all move the markets. Remember to choose securities based on the underlying fundamentals of companies and the industries in which they operate. Policy changes may take a long time and well run companies and industries may adjust quickly.
Develop Conviction in Long-Term Opportunities. The election results have undoubtedly clouded the outlook, which is unsettling for most investors. Yet at the same time, many long-term market trends are unlikely to change. Developing these high convictions will certainly incorporate increased political risk.
Happy post-election day. I’ll be in contact again very soon to keep you updated on our next thoughts. And, as always – Thank you for Your Business.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Some of this research material has been prepared by LPL Financial. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly. Approved Tracking #: 1-554235.