Trump Victory – What’s the Impact for Investors?

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With Donald Trump being elected President of the USA, what is the impact for investors? Will he create “high anxiety” as the unexpected head of that great democracy in the same way as the Brexit vote has in the UK? In other words, uncertainty about the future which tends to spook markets.

But readers should bear in mind that the President has limited powers (much less than a UK Prime Minister). There are numerous checks and balances in the US constitution. Indeed Presidents are often thwarted when attempting to implement their favourite policies by Congress or the Supreme Court (the latter makes law by interpreting the US Constitution rather than just interprets the law which is what the UK Supreme Court tries to do whatever some may think). So the impact on the US economy may not be great, at least in the short term.

I am writing this before the US stock markets have opened, but the dollar has fallen and UK markets initially fell. Those companies with large US profits suffered some impact – for example Experian had the misfortune to announce their interim results this morning which no doubt reminded everyone that the majority of their revenue comes from the USA and their accounts are even reported in dollars. So they fell 5% initially but subsequently recovered somewhat.

But it does seem likely there will be more protectionism in the USA. Mr Trump declared openly his opposition to past trade deals such as NAFTA and to ones in the pipeline. So unlike the Brexiteers, who generally support a free trade agenda, he may tear up past trade agreements. However, he has indicated he would look favourably on a UK-US trade agreement if the UK exits the EU which is more than Mr Obama did.

Defence and healthcare stocks gained ground. The former as the US may spend more on defence and the latter as Mrs Clinton was seen as likely to take a tough line on pharmaceutical prices and Trump may try to dismantle Obamacare.

The President also committed in his acceptance speech to spend more on infrastructure – to quote: “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals”. He suggests this will put millions of people to work, no doubt like Eisenhower’s construction of the US Freeway system did in the 1950s.

President Trump’s views on the Federal Reserve may have some impact. He has complained about the Fed keeping interest rates artificially low so future rises may happen sooner than expected. That should have a positive impact on the dollar of course but borrowing to boost infrastructure spending and to boost the economy will have the opposite effect.

Other aspects of Mr Trump’s acceptance speech were more “presidential” in style than one might have expected from him. He spoke about a great economic plan so as to double growth and build the strongest economy in the world. But he also talked about seeking common ground with all people and all nations.

But for the many of us who might have preferred a third candidate, let us accept what we have got and just be wary of the unintended consequences of some of his possible policies. Stock market investors are reminded that it is the companies and sectors you invest in, rather than your guesses at the future impact of economic policies (which often have perverse and unpredictable outcomes), or the style of the President of the USA, that have the most influence on your long term investment performance.

Roger Lawson

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