Investing in the Aftermath of the Trump victory

image005By Kara Lilly, Mawer Investment Management

Special to the Financial Independence Hub

Donald Trump became the 45th president-elect of the United States last night. The businessman beat former secretary of state, Hillary Clinton, ending what has been a long and salacious presidential campaign. The GOP also kept control of both the Senate and the House, leaving the fractured party with room to implement its policy platform.

Markets were relatively calm today despite the knee-jerk selloff that was triggered by the impending victory last night. Equity indices have steadied and volatility indices have fallen as market anxiety has tempered. The greatest impacts so far appear in the bond and currency markets. Yields on longer term U.S. government bonds have risen amid wagers of higher spending. Meanwhile, the Canadian dollar and Mexico peso have sunk on concerns of unravelling economic integration with the U.S.. Within equities, pharmaceutical stocks rose as investors unwound bets that a Clinton win would usher in greater regulation.

No meltdown but still a significant investing event

While the election results have not destabilized markets — a good thing — it is nevertheless a meaningful event for investors. If this election cycle has revealed anything, it is that there is a growing group of people in the world for whom the current economic trajectory is not good enough.

Anti-immigration, anti-establishment and anti-globalization viewpoints are becoming more normal. Underneath the anger appears to be a perception that some people are losing economic ground and a fear of the way the economy is transforming. These fears, and the populist symptoms they provoke, are unlikely to go away without courage and fortitude on behalf of our leaders. It remains to be seen whether Trump will rise up to this challenge or ultimately make it worse.

Leading up to the election, we cautioned our clients that there seemed to be very little “edge” regarding the outcome of the election. We still believe this to be true. How the newly elected president will act and what policies he will pursue are not yet known, as is the way that asset markets will react to these and other changes in the world. Moreover, a lot more than “who is the President of the United States” matters to how markets perform. Diversification remains the prudent strategy in this environment.

Not for the first time this year did markets open to a surprise political result. It is encouraging that financial markets did not crumble at the upset (although this is rarely the case with elections anyway). But even if volatility had spiked more, there would have been no cause for alarm.

Clients should remember that volatility is a normal function of markets. In times like these, the best course of action for most investors is to invest according to a philosophy and process that makes sense over the long term and that can steer capital prudently through many different scenarios. This is the approach we believe in and continue to take.

Kara Lilly 4x6 Formal blue bgKara Lilly is the Investment Strategist at Mawer Investment Management Ltd. She plays an active role in asset mix, risk management and the macroeconomic investment process. 

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