There are probably only five people in the entire country that aren’t shocked by the election results this morning. This election cycle has been particularly contentious but in typical fashion, half the country is happy today, and the other half in deep despair. I’m going to guess that breakdown includes our client base as well.
Trump’s candidacy has been so unconventional that no one knows exactly what’s to come. He has not held a political office before and has no governing track record. His support really came from a desire to see things change from the way they have been as opposed to supporting a specific agenda. In addition, he had to beat both the republican and democrat political machines in Washington as well as the mass media, so it’s uncertain how he’ll work within his own party.
All this uncertainty is reflected in the market’s reaction, too. Global markets and stock futures began to sell-off as key states began to be called for Trump. By the time it became clear that he was going to win, the S&P and other major market futures traded dramatically lower. By around midnight, the Dow futures were trading down more than 800 points. At the low point, all the stock averages were down roughly 5%. Stock futures then rebounded significantly as we approached the open this morning. A short while after the markets opened, stocks bounced around on either side of breakeven. That’s quite a turnaround from last night, but still a little unnerving.
Looking forward, what will this mean for your money? Admittedly, it’s extremely difficult to know what a Trump presidency is going to look like. He has a very populous message and didn’t abide by any of the conventional rules when speaking on the campaign trail. The development of his foreign policy is going to be interesting to say the least. Because he was so opposed by the republican establishment, it’s unclear how he’ll work with the legislative branch of government.
But there is one thing we do know. He’s going to be very pro-growth and this will be good for the stock market. The biggest problem that our economy has suffered from for the past nine years has been employment. This includes the number of people working and their wages. So much of our economic malaise over those years originates from the employment picture. One of my biggest disappointments with the current administration has been their lack of willingness to prioritize this when it conflicted with their regulatory and social agenda.
Over the years, it has become increasingly costly and difficult to employ people. Whether you agree or disagree with the reasoning behind all these rules imposed on employers, there is no denying that the burden on employers is significantly higher. These rules have come from a host of government agencies (DOL, NLRB, IRS, EEOC, SEC) and cover almost every aspect of employing someone (paid leave, healthcare, hours worked, overtime, minimum wage, workforce diversity, job classification). This will surely change. In addition, the business environment in general has been pretty hostile. Regulations regarding everything from energy, banking, transportation, taxes and the environment have also been a huge headwind to economic growth. This in turn affects the need for workers. We see this changing dramatically as well.
This should also be good for monetary policy. Since the financial crisis, the Fed has been papering over the government’s lack of fiscal policy. QE1,2 and 3, all the bond buying, excess reserve policies, and record low rates that have been punishing those on fixed incomes for such an extended time have been the direct result of massive deficits combined with lack-luster growth. Hopefully now the Fed will have a path out of the corner it’s been painted into.
If there is an economic weakness in the Trump campaign it will be in the form of trade. His populous message has been very critical of open trade. Tariffs and backing away from existing agreements could be very harmful and quite misplaced. His campaign message has been to bring manufacturing jobs back to America. The problem is that, by far, most manufacturing jobs have been lost to automation and not moving off shore. So, it’s unclear what benefit a trade war would bring. The cost in growth and consumer prices could be significant.
There is also the issue of the national debt. He has stated in uncertain terms that he wants to begin a massive infrastructure spending program. Our current debt level is already at a dangerous level. Many of these projects are needed, but our current debt level will limit what we can prudently achieve. This will only be exacerbated with higher rates.
There are clearly a ton of other questions and concerns about a Trump presidency (foreign relations, immigration, armed conflicts, supreme court appointments, etc.). These are significant for sure, but when it comes to money matters, we view this election result as a positive event.
Expect a lot of volatility over the coming weeks, but today’s trading, so far, has been positive. It’s important to remember that the stock market is a forward-looking animal and its prices are based on what it thinks is going to happen. This means that it hates uncertainty. In fact, the market will often react better to known bad news than significant unknowns of any kind. Just like Brexit, there is always an initial flight to safety sell-off and as time gives way to analysis, the markets calm. We saw that reflex last night. There is a lot for the markets to digest with these results but thankfully the initial focus has been on Trump’s pro-growth agenda. We’ve been cautious of the stock market for a while because we didn’t see a real catalyst for growth. We see this election as that catalyst and any weakness in the markets as a buying opportunity.
