A Remarkable Market Recovery in Under 12 Hours
In a decisive yet unexpected victory, Donald Trump became the 45th President-elect of the United States on Nov 9 in a close election, besting Hillary Clinton by securing more than the 270 electoral votes needed to win.
Initially as election results poured in late last night and early this morning, the stock market reacted with an immediate plunge of Dow futures by 190 points and by the maximum allowed 5% for both the S&P 500 futures and Nasdaq 100 futures. Market volatility set in immediately overnight after Trump pulled off a surprising upset and won the White House. However, by close of day November 9th after Trump’s victory was formally announced, the Dow Jones actually posted its second large gain this week, rising 257 points to 18590. The initial risk sell-off was replaced by soaring stocks by close of day.
Similarly, the NASDAQ rose 4.9% as investors bet on rising interest rates and lower regulations. In addition, the Nasdaq Biotechnology Index rose 9%. Yields on 10-year Treasury bonds surged 2.07% for its highest one-day increase since 2013. Gold futures traded higher just as in the aftermath of Brexit, rising 2.19% or $27.90, to $1,302.40 per ounce (Source: MSNBC).
Investor Excitement Over New Leadership
Investors are quickly embracing the ascension of Donald Trump as the new U.S. president, optimistic about his plans for fiscal stimulus and to pull the country out of a post-crisis economic stagnation. While Trump has not laid out clear specific details for his stimulus plan, he has emphatically stated that he will restore U.S growth, renegotiate unfair trade deals, lower business tax rates to one simplified 15% rate and decrease regulations.
Trump has defied all odds as an outsider to the establishment. Similar in tone to Brexit or the British exit from the EU a few months earlier, Donald J. Trump’s decisive victory in the U.S. Presidential election demonstrates a growing populist trend to reject globalism and dissatisfaction with the rate of economic progress and quality of life standards. However, while the markets took longer to recover from Brexit, stocks have rallied far faster on the American front.
Investors are also excited about having a seasoned businessman in the White House.
Trump’s business experience is evident in his declaration to reduce regulation and tax rates while renegotiating trade agreements such as NAFTA and the Trans-Pacific Partnership (TPP) so that American businesses can compete more effectively on the global stage.
At the same time, there has been some concern how Trump’s protectionism view to safeguard American interests alone will work with international agreements and partnerships. This approach could antagonize long-standing partnerships abroad that have stabilized world economies. There is potential for conflict but also room for positive, much-needed change in these areas. At the same time, Trump’s decision to remove restrictions on business has the potential to spur innovation and growth. These two somewhat opposing views may counterbalance each other on the global stage, but the full effect is yet to be defined and executed.
As Trump leads the world’s greatest economy into uncharted waters, his full impact as the new President on stock and investment trading is unclear. While immediate volatility can be expected as in all election years whenever there is a change of candidate and a different political party, a return to stability is also anticipated over the long term.
In fact, the U.S. economy has been expanding steadily at a slow pace for the last seven years. At Capital Wealth Planning, our expectation is a slow increase in the U.S. stock market during the next few years in line with earnings growth. Our investment portfolio planning is equipped to withstand short-term volatility.
At CWP, we are also positioned to leverage new opportunities as they arise such as new infrastructure investments proposed by Trump. Investors who are willing to stay focused on both opportunities and their goals with a future mindset, will most likely benefit significantly in both areas.
Investment opportunities include:
- Continued opportunities from high quality growth companies, trading at attractive valuations, that have the potential to outpace the broader market over the long term.
- Investing in regional banks as opposed to large conglomerates given an expected shake-up following changes in banking regulations.
- Deregulation in sectors such as healthcare and energy will offer greater investment opportunities. - Trump’s proposed improvements to domestic infrastructure would offer investment opportunities for materials, industrials and construction industries.
- The fundamentals (supply, demand and financing environment) and valuations (relative to bonds, history and private real assets) will continue to be the primary drivers for liquid real assets. Both remain healthy and attractive despite change of a President.
- Strong investor demand provides a favorable technical backdrop. Within the current low interest rate and low growth environment, liquid real assets can offer potentially attractive yields, predictable growth, lower volatility and greater resilience to inflation and changes in interest rates than bonds.
Our Approach Regarding Asset Management
While volatility will remain in effect in markets for the short-term, we have always actively protected our clients’ assets proactively to reduce risk. We do not foresee disruption in the management of our client portfolios.
We assist our clients with a comprehensive set of innovative and proven solutions and investment insights with sophisticated and carefully thought out risk and portfolio analytics.