It was always going to be a close election but many were still surprised to find Trump won many of the vital swing states. As the Republican party retained control of the Senate and House of Representatives Trump will have his work cut out trying to unite the party and implement policy changes.
Markets have already reacted to the news with falls for both the dollar and peso and Purple Strategic Capital, one of our valued partners, share their views on the results:
“As with Brexit we saw a surprise election outcome being announced in thin trading volume and expect this to extend through the European trading session into the US market open.
The election didn’t particularly focus on economic policies, so in the shorter term we need to be able to absorb market volatility as we look out for opportunities and aim to control risk that will arise in the coming months.
In his first speech, Trump talked about infrastructure spending, building trains, roads, schools and hospitals and an America for Americans to be proud of.
It is our view that we are entering a new era for global politics and that we are seeing a loss of confidence in traditional political parties. Along with Brexit, this represents a move towards more populist policies and wealth redistribution rather than wealth creation from globalisation.
We are likely to see an increase in fiscal spending rather over central bank monetary policy that has dominated the recent past. Trump has talked about reducing corporate taxes and may introduce trade tariffs so we will see some market volatility and favour an active over passive approach due to expected increased currency and interest rate volatility. We see these policies as potentially positive for the US economy, but less favourable for other markets.
Our approach is to focus on downside risk management. We have been aware of the political risk that could result in market volatility, which may have been ignored by the general market and investors, and our positioning reflects our concerns.
Our longer term approach means we have looked to avoid exposure to politically sensitive markets and have reduced exposure to Emerging Markets, Credit markets and directional interest rate exposure.
We will be watching markets in the coming days to look for opportunities and to continue to identify risks when we have greater clarity of how this result will affect markets going forward.“
The markets, as we saw with Brexit, may suffer over the coming months, however, Trump has been big on promises to boost the American economy. Should this happen, and consumer confidence reacts favourably, then long-term the markets may re-gain this morning’s losses.
