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By now, there’s not much I can add to the ubiquitous media coverage of Donald Trump’s shocking imminent return to power.
Since our “beat” here is Financial Independence I’ll spin this that way. A few weeks back we looked at a Franklin Templeton webinar on the investment implications of either a Harris or a Trump victory. See this blog I wrote on October 23rd, headlined Don’t mix politics and investing but financial community thinks a Trump victory more positive for stocks.
You can say that again. As I write this in a daze mid Wednesday, the Dow Jones Industrial Average was up 1300 points or 3%. Bond prices, on the other hand, are going in the opposite direction.
Franklin Templeton also issued a press backgrounder conveying the view of various money managers. For obvious reasons, below I have cherrypicked the ones that address a Trump victory.
Before we get to that, I’ll point to a Globe & Mail column by Andrew Coyne published Wednesday (Nov 6th), in the aftermath of the election result. The headline tells the tale: Trump’s election is a crisis like no other, not only for the U.S. but the world. (likely under a paywall.) The world yes, but especially Canada. If you can access the column also check the hundreds of reader comments, which offer many and varied takes on the implications of Trump 2.0 on the Canadian economy and politics.
Personally, during the run-up to the election I did not tinker with our family’s portfolio to take advantage of any alleged “Trump trade” or “Kamala stocks.” Those who noted this site’s 10th anniversary the day before the election will probably feel this is a broken record, but I’ve found that a globally diversified balanced portfolio with exposure to all major asset classes is adequate preparation for whatever the investment world may have in store for us.
Asset Allocation ETFs play offence and defence
Let the money managers at places like Franklin Templeton, Vanguard Group, BMO ETFs, Blackrock or Robo advisors decide the relative proportions. Those who engage financial advisors or portfolio managers may want to check in for a portfolio update. For average DIY investors, those Asset Allocation ETFs often referred to in this site should allow investors to sleep at night no matter what horrors await us in January and beyond. In other words, the stocks component of these AA ETFs let you play offence and benefit from the rising of stocks as animal spirits take over investors. But a healthy fixed-income allocation also allows you to play defence in case things get too ebullient. As the old saying goes, you want to “Eat well and sleep well.”
Younger folk can go for the Asset Allocation ETFs that have 80% or even 100% in equities; those in mid career could do worse than use something like the 60/40 mix of Vanguard’s VBAL [TSX[, and those in Retirement can go to a more cautious mix of 60% fixed income to 40% stocks, or even 80% fixed income. BMO, BlackRock, Vanguard and Horizons all have Asset Allocation ETFs that offer various asset mixes, providing rebalancing as you go.
Strategically that should suffice but of course you can take a Core & Explore approach and use those AA ETFs as the strategic core while tinkering at the edges with more tactical plays like Tech or Mag 7 ETFs, gold and precious metals ETFs (personally I’ve always had 5 to 10% in the latter, which has been a plus this year), other commodities plays, Real Estate or REITs, and Real Assets like the Purpose Diversified Real Asset ETF (PRA/TSX).
For those who are really enamoured of the Tech Bros, some minimal exposure to crypto (1 to 3% is my personal tolerance), via Bitcoin and/or Ethereum ETFs may be appropriate if you have the stomach for it. In retrospect, big bets on Elon Musk’s Tesla and Trump’s DJT Stock have turned out to be profitable but that was always a gamble I would never have taken.
On then to what the experts said about what a few weeks ago was just a hypothetical Trump victory:
Impact of the presidential election on stock market performance
Grant Bowers, Portfolio Manager, Franklin Equity Group:
“ …if we see a sweep of one party taking control [of the White House, the House of Representatives and the Senate], I think you can expect more volatility because if one party controls all three parts of the government, they’re able to affect meaningful change … If you look at the way the market has performed [recently], there is definitely some optimism for President Trump to win with his pro-business, low tax, low regulatory policies. Now the other side to that is what happens with tariffs and the impact around that, as well as the fiscal policies and levels of debt? You don’t get all the upside without some of the potential downside.”
Interest rates and consumer spending
Sonal Desai, Chief Investment Officer, Franklin Templeton Fixed Income
“With a Trump presidency, we should anticipate that he will continue to speak on interest rates. However, he has come out and said he doesn’t believe he should have the ability to dictate those interest rates. The broader political pressure is something the Fed has lived with in the sense that every time [U.S. Federal Reserve Chair Jerome] Powell goes up in front of Congress, he either gets beaten up by the Republicans or the Democrats. This is a time-honored tradition. I tend to believe more in the strength of the institution and therefore assume that the more dramatic changes that people are worried about are unlikely to come.”
Tax cuts and fiscal deficits
Jeff Schulze, Head of Economic and Market Strategy, ClearBridge Investments
“Generally speaking, in order to see a big movement in taxes or spending, you need to have a sweep scenario. If nothing is done, you’re going to see a fiscal cliff, with almost every American seeing a higher effective tax rate. You also have some corporate provisions that are rolling off … From a Trump perspective, if it happens to be gridlock, you’re likely going to see him try to push further all of the tax cuts that are in the original [Tax Cuts and Jobs Act] in exchange for more spending for families, seniors and lower income people. These provisions are going to sunset at the end of 2025, so the markets really aren’t going to price that dynamic in until the fourth quarter of next year. Ultimately, I think there’s incentive for both sides of the aisle to come together and move forward on a legislative agenda.”
Equity investment opportunities
Grant Bowers, Portfolio Manager, Franklin Equity Group
I don’t think you would see a dramatic shift in regulatory policy for big tech under a Republican administration. Where you would see an impact is areas like financials and energy, where deregulation can have a directional change from where we are currently with the Democratic administration … Generative AI has been probably one of the biggest secular themes in the market over the last couple of years. We sit here in Silicon Valley so we actually truly have a front row seat on how companies are viewing it. Our opinion is that this truly is a major technology platform shift, on par with what we see saw with cloud computing, the rise of mobile or even the birth of the internet. And it has the potential to drive trillions of dollars of economic impact globally … Ultimately, this is going to show up in an application phase where the products and tools become more embedded in our everyday lives. This is where we think the real value is going to be generated from productivity gains and cost savings.”
“The large tech companies have told us about their roadmap for investment over the next few years as they build out data centers to support these large language models. We don’t see the election outcome having any impact on those building plans.”
Jeff Schulze, Head of Economic and Market Strategy, ClearBridge Investments
“Volatility does tend to move higher as presidential elections near. Since July 1, the [Chicago Board Options Exchange’s CBOE Volatility Index, commonly called the VIX] is up over 50%. This is what you usually see as you head toward an election. But what’s interesting is that the S&P 500 has moved higher over the last couple of months. This equity run-up is at odds with what we normally see going toward an election. Traditionally, equities move lower heading into election day. What we’ve seen recently is actually pro-cyclical leadership. It appears that the markets are front-running a potential Trump presidency.”
Fixed income investment opportunities
Sonal Desai, Chief Investment Officer, Franklin Templeton Fixed Income
“If I just look at Treasury yields, we’ve already started seeing movement as polls start pricing in a possibility of a Republican sweep, which several weeks ago seemed highly unlikely. And we are seeing a Treasury sell-off. That is an acknowledgement of the fact that budget deficits are expected to become a lot higher … Given the expenditure expansions under a potential Democratic sweep and some level of tax cuts under a Republican sweep, I would say the outlook is not one which is particularly favorable for the long end of the yield curve post elections. Municipal bonds are an opportunity, but this is driven more by the fundamentals than by the elections. I think in any state of the world, currently, munis still look very interesting.”
Today, half of market and political predictors are baking in glory, while the other half are retrieving into a dark corner of the internet to find their own spin on why/how they went wrong.
The demand for active stock pickers, market pundits, and fund managers has never waned. Though passive funds now hold more U.S. stock than active ones, there’s still a widespread belief that some people can “pick the winners.” Even if the data suggests otherwise, we keep searching for the person who can give us an edge.
The Trump Factor and the Return of the Soothsayers
With Donald Trump’s election, the modern-day prophets have returned in force. Everyone has a take, a hot prediction, a “plan” for the markets and economy under Trump’s second term. They’re quick to say, “Here’s what will happen next,” or “You should buy this, sell that.” But what’s the cost when they’re wrong? When your savings are on the line, every false prediction stings.
Those who predicted Trump’s success are stepping into the spotlight, basking in their brief moment of accuracy. But we should remember that these predictions, while sometimes right, often carry immense risk. The bigger question is: what happens to the countless wrong predictions that quietly fade away? And those who predicted a win for Kamala Harris, what are they saying now that their prediction proved wrong?
What Can We Do? Stop Listening
So, what’s the best approach for an investor today? Ignore the noise. Ignore the pundits. When Trump’s presidency or any major event tempts you to trade on someone else’s gut feeling, remember that even the experts are often guessing.
Yes, it’s uncomfortable to sit with uncertainty. But in reality, the honest answer is usually the simplest one: “I don’t know.” It’s a response that feels unsatisfying because it lacks certainty. And yet, the path to financial stability often lies in acknowledging what we don’t know and focusing on the fundamentals.
As much as we might want someone to tell us what’s coming next, the best investment strategy is often to stick to what we know works. The stock market will rise and fall, elections will come and go, and financial “sorcerers” will continue casting their spells. But the real power lies in tuning them out and investing based on reason—not magic.
well said, Alain