As the 2016 Election comes to a close with Trump claiming victory, many investors are wondering what direction the market will go. Read on as we take a look at post-election insights and other investing news in this edition of Steady Investor’s Week…
Investment Insights for a Trump Presidency – many investors have been tempted to “sell now and ask questions later” following Trump’s surprise victory, as we venture into the unknown as it relates to policy measures, particularly pursuant to trade deals and immigration (globalization). But, investors should remember that it is not the candidate that will determine the direction of the market – it is policy that matters. And while we have a good idea of policy proposals in place from Trump’s campaign, there is still a great deal of uncertainty as to how those policies may actually be enforced. So, the key message to investors now is: remain patient and make decisions only on known quantities, not assumptions. As we wait for policy proposals to be proposed, negotiated, and implemented, the action to take in the meantime is to focus on economic fundamentals, which remain sturdy. Zacks Investment Management (ZIM) expects GDP growth to rebound to above 2% in the second half of 2016 as personal income grows, households continue to spend, and firms stop reducing their inventory stocks. ZIM also anticipates that the weakness in business investment will come to an end, as the lingering effects of earlier dollar appreciation and lower energy prices dissipate – though slow foreign growth and trickle-through effects of Brexit may continue to pose a headwind. In all, ZIM expects GDP growth to be closer to trend in the 1.5% to 2% range in 2017 – modest, but still expansionary
Future of Brexit – citizens in the U.K. voted to leave the European Union, but will the government get in the way? There was recently a High Court Ruling in the U.K. that allowed Parliament the ability to vote on triggering of Article 50, which is required to formally start the “exit” process. But a Parliamentary vote poses a significant barrier to the exit, as there may not be enough votes to actually trigger Article 50. Prime Minister Theresa May is challenging the measure, which could add to the timeline of Brexit actually occurring. Meanwhile, in Scotland, the government is making plans to challenge Prime Minister May’s efforts to change the High Court’s ruling. This series of events reminds us of the political reality which also applies to the United States today – that government is much messier and more complicated than campaigning.
Is Janet Yellen’s Future in Danger? – many times on the campaign trail, Trump made it clear that he believed the Federal Reserve to be ineffective in setting interest rate policy, and he even questioned the basic function and value of having a Federal Reserve at all. So it makes sense that markets will be watching closely to see if the much anticipated rate hike occurs in December, though the odds of a hike have been falling. The possibility of a Yellen resignation also appears to be a distinct possibility, even though her term does not end until February 2018.
China Filling a Power Void – with Donald Trump’s stated intent to label China a currency manipulator, the world’s second largest economy may be positioning even further for outright domination in Asia. Trump has also stated outright that he will abandon the Trans Pacific Partnership (which excluded China), which was just as much a trade deal as it was designed for the United States to build a stronghold in Asia. With the U.S. out, China is posturing for a Beijing-led Asia-Pacific free trade area at a regional summit in Peru later this month.
As the 2016 election comes to an end, it is evident that many factors are currently at work in the market. With so many factors affecting the market, ultimately the question becomes—what is the overall state of our economy? We at Zacks Investment Management are always looking hard data instead of getting caught up in the headlines to provide context for investing decisions. If you want an inside look at what we’re seeing, download our Stock Market Outlook Report. Learn more by clicking on the link below
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