After last night’s historical election, investors are left with a variety of questions. CWA Digital News Investments’ Editor Brad Sanders addresses a few of those now to shed some light on what is happening, and what the potential ramifications are now that Trump has won the election.
WHY IS THE MARKET SO VOLATILE?
This is expected, but not because of the presidential outcome. We have written many times that the one thing the market hates the most is uncertainty. Now that we have elected a president that uncertainty is largely gone. However, a new dose of uncertainty lies with the fact that the Republicans swept the House and Senate. The stock market seemingly loved the gridlock we have experienced for the past 8 years because it kept legislation from being passed. Now that the gridlock is removed, good or bad, legislation will be able to move through Congress much easier, and many of the new laws could have effect on the market. The market would have likely been just as volatile if the Democrats swept, and for the same reasons.
WHAT HAS CHANGED?
In the short term, absolutely nothing; there is a heavy dose of uncertainty in the long term. What will tax policy look like? How are trade agreements going to change? These are all questions that will be debated in the next few years but are issues that cannot and will not change overnight just because we have a new President-elect.
ARE THE MARKETS IN TROUBLE?
As of this writing the S&P 500 is up almost 1% for the day. At one point in the evening the futures were down -5%. That is more than they were down after 9/11 and after Lehman Brothers fell. We would continue to expect the market to act in a very volatile fashion because the result of the election will have an effect on the currency markets due to Trump’s protectionist leanings when it comes to trade. The Mexican Peso is currently down 8% and we would expect similar moves in the currencies of other major trade partners. When currencies move that much it causes a liquidity tug of war and asset prices can swing around, sometimes violently.
WHAT DO WE DO WITH THE ALLOCATION?
Now more than ever it is prudent to take a wait and see approach to the markets. Kneejerk, emotional decisions seemingly never work out well in the long run when it comes to the investment markets. Our models are positioned defensively and have been for some time, so if the markets do take a turn for the worse we should be able to weather the storm to a degree. In the meantime we will continue to read and research the markets to see if we can get any visibility in to how things will look going forward and will adjust if and when there is some clarity.