Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are currently focusing on, and our thoughts on the issues of the day.
President-elect Trump earlier today said: “Now is the time for America to bind the wounds of division”.
After the most rancorous Presidential contest in history, we now have a verdict – Donald Trump will be the next leader of the United States, the ‘free world’ and Commander in Chief of the biggest armed forces the globe has seen. All of this came contrary to market and polling expectations. Yesterday, Hillary Clinton held a 3.4% lead in the final exit polls, identical to the lead the Remain campaign held on 23 June.
The outcome markets feared has materialised and equity markets are feeling the immediate brunt of the sell-off in risk assets. As before, currencies are also in the spotlight, none more so than the peso, which has tumbled to all-time lows against the US dollar (although as we write has recovered a little). Although still early days, we feel the dollar may strengthen as it constitutes a safe haven currency and treasuries should be in demand in a time of elevated stress.
The anti-globalisation rhetoric of (still Mr) Trump in the campaign has not helped Asian markets this morning; likewise in Europe – these markets could be especially damaged by his election as investors have to be nervous of a more economically isolationist United States. It may be that the initial sell-off will be much more aggressive than that which ultimately results but, unlike Brexit, we have some definite dates. Add to this the ‘triple Trumping’ of America, politically, the Republicans have the President, the Senate and the House of Representatives – more power than anyone expected in the hands of a Trump-led Republican party … we should note that many senior Republicans have been at odds with Trump, which may curb some of his wilder ‘plans’.
Aside from very broad speculations, it is difficult to know how markets will respond in the longer term. The increased uncertainty means that the Federal Reserve is likely to delay its plans to increase interest rates so the ‘bad news is good news’ theme in markets may play out again. For those seeking positives, one might point to the possibility of generous tax cuts and the certainty of increased infrastructure spend to which markets will be very receptive; the uncertainty created by this development will surely be the dominant factor in the short term. It is likely that US Treasuries will have to price in the economic uncertainty which is going to prevail, and if the market starts to worry about the trajectory of US debt then we have another serious issue on our hands.
Given what has happened, our cautious positioning seems vindicated and we feel there is little to be gained in attempting to second guess this situation at this moment. This new political uncertainty, coupled with several other issues facing markets mean that it is hardly the time to become any braver. When it comes to 20 January 2017, the 45th President may be at the wheel of the world’s largest economy, but find the wheels are, if not punctured, deflated.
Investment Line is written and edited by members of the Mattioli Woods Group Investment Committee, and is for information purposes only. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances.
Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.