Last night we came together as a country and voted for our next president. And contrary to what the polls had indicated, we elected Donald Trump as our 45th president. In my eyes there were many similarities to what occurred in the United Kingdom this summer with their vote to exit the European Union. First of all, the anti-establishment sentiment that enabled the Brexit to succeed was the same sentiment that propelled Trump to his political success. Second, the surprise result of the Brexit vote shocked capital markets all over the world and a quick sell-off ensued. The same thing happened here last night. The difference is that by morning the markets had already absorbed the shock. Asian markets, which were the first to trade on the news of a possible Trump victory, ended off, but by the time the European markets were closed, many were ending the day in positive territory. In the US, a quick selloff was followed by an upswing before the morning had even ended.
The markets do not like uncertainty and had expected a Clinton victory. Furthermore, because of Trump’s lack of a political track record, and a campaign which raised more questions than it answered, the unknown factor was amplified. In addition, a Republican sweep was not on anybody’s radar. As a result, the ensuing market downdraft could be anticipated; what was surprising was the speed at which the markets recovered.
As we had mentioned in our video, “Election 2016: Implications for Business,” (click here to view), a Trump victory is good news for some segments in our economy, just as a Clinton victory would have been for some others. To recap, a Trump victory is good news for pharmaceuticals, medical device makers, fossil fuel companies, the defense industry, telecom service, and cable companies.
In addition, as I mentioned in my last blog, (click here to read), the primary cause for many corporate inversions is the US corporate tax code, and without a change, the problem would continue to grow. A simple one-time tax holiday for repatriated profits would not fix the issue. The fact that corporate tax reform is on the top of the Republican agenda could mean that something may be accomplished.
As I have discussed before, I am concerned about the anti-trade sentiment expressed by President-elect Trump. Of course, this anti-trade sentiment was also shared by Clinton. I don’t believe reneging or renegotiating trade agreements will be a positive. We’ll have to wait and see what effect the elections have on trade, our economy, and our investments. For now, the markets have already come to grip with the surprise.
Washington Trust Bank believes that the information used in this study was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchase or sale of securities or commodities.
Rick Cloutier, PhD, CFA is the Chief Investment Strategist for Washington Trust Bank with over 25 years of portfolio management and investment experience. He is responsible for directing the portfolio management, research, and trading activities for the bank’s multi-asset class strategies. He is also responsible for overseeing the client portfolio manager team and portfolio analytics team. Rick has written numerous articles for Investopedia and wrote a weekly column for the Fall River Herald News in Massachusetts. His research has appeared in numerous journals, including the Journal of Investment Management and Financial Innovations, the Journal of Business Management and Economics, and the International Journal of Revenue Management. He provided a nightly commentary on WALE radio and authored the novel Caveat Emptor. Rick earned his BS from URI, MBA from Boston University and PhD from SMC University.