I must admit I have been quite surprised by the resilience of the market yesterday and what I am seeing in the futures this morning. Statistically, the day after an election, the U.S market is down on average 1.8%. When President Obama was elected 8 years ago, the following day the market was down 5% but then again at that moment in time banks were falling off the cliff and global economies were dipping into recession. It appears to be different this time – let’s see how it unfolds!
On a macro level, I have concerns about foreign relations with other countries in general, especially the Middle East and Russia. These are macro issues we cannot possibly plan for in our portfolio’s. What I do think though is Trump will surround himself with smart people in various positions of cabinet and most probably appoint an experienced secretary of state, and foreign ministers.
On a micro level, you have to keep in mind we have 35%-45% sitting in bonds. The balance of the portfolio are dividend paying and dividend growing stocks. Regardless of the noise we will be hearing in the coming months, we still earn interest from the bonds and dividends from the stocks. That said, in terms of what the election means to us, keep in mind the Republicans had a sweep in both the House and Senate. You can be sure Republican mandates will be followed, namely tax cuts and spending cuts. Reducing the debt must be a priority and one way to do so is reduce spending. A few items in Trump’s campaign that resonate to me are:
1.Tax holiday for corporations with money offshore
3.Trade (keep in mind Republicans by definition are mostly pro-trade)
4.Easing high regulation burden in order to stimulate growth
6.Possibly raising tariffs
A few sectors of the economy that may benefit will be pipelines, industrials, healthcare, and energy. The sectors which may not benefit will be hospital services and international trade, especially in Mexico.
In terms of the CAD$, given Canada’s economy is subdued investment in Canada will be lower. This may translate into the CAD$ being lower for longer. In terms of the USD$, with uncertainty investors flock to the dollar for shelter, possibly Gold. As a result, the interest rate hike the Federal Reserve is considering in December may not go through. If the FED does raise rates, I suspect the next hike will be a very long way out.
Additionally, I provided a video interview with Bruce Cooper (Chief Investment Officer at TD) whereby he analyzes the impact of a Trump presidency on financial markets.