Market Update – November 2016
Market Update – What impact will Mr Trump winning the US election have on the markets?
Markets never respond well to change, hence their fall just after Trump’s victory. But the main factor for a strong economy is confidence. When people are confident, they buy new things including houses, cars and consumer goods and when businesses are confident they invest and grow to ensure they can service the growing demand. So, if people and businesses stop buying and investing because they have lost confidence in the American economy, then the markets in turn will continue to fall.
But it’s worth remembering that the American economy is quite buoyant, with reasonable growth across most sectors and recently improved business outlook surveys. And whilst Mr Trump’s economic programme has been at times controversial, particularly in light of his vocalised hostility to trade deals and immigration, there are also some positives, namely his wish to repatriate large sums of corporate cash sitting offshore for tax reasons.
Growth or recession?
It’s difficult to say at this early stage whether Mr Trump’s Presidency will slow growth or drive the US into recession. But there will undoubtedly be new opportunities to invest at better prices as a result of short-term negativity. But in the longer term there might also be the potential for the eradication of global deflation pressures, which financial analysts believe will be good for shares, rather than bonds.
To date, many people this year have benefited by taking some risk with shares and investments in other real assets. This has happened despite political volatility in both the US and Great Britain. And whilst we won’t know yet whether the US election result will fundamentally change the medium term prospect of modest growth worldwide, as investors you may want to ensure that you have a mixed long term portfolio.
Diversification is key
According to a recent article in the FT, “investors will do well to make sure that they are well diversified outside of US stocks and bonds and have sufficient exposure to alternatives and international securities.” This is a position we would always recommend in any case. Without a crystal ball, it’s important to have a well diversified portfolio.