November 14, 2016
Decreasing regulations and lower tax rates are cornerstones of Trump’s platform.
With the election of Donald Trump as President of the United States and Republicans retaining control of both the Senate and the House of Representatives, much of what happens in the markets is still up for debate.
The election of a non-incumbent president is always a potential trigger for market volatility. In fact, the S&P 500 has dropped an average of 3.3 percent in presidential election years where no incumbent is seeking re-election, and markets generally tend to experience volatility in governments dominated by one party, according to data from Strategas Research Partners (see accompanying graph, “Markets cautious in non-incumbent elections”).
Additionally, Donald Trump’s unpredictability and lack of position on several policy issues may lead to particularly heightened market uncertainty. This uncertainty could cause a flight to safe-haven assets (such as gold and T-bills), which could lead to an underperformance of credit and bias the market toward lower equity prices and higher bond prices.
However, U.S. Bank strategists note that the factors driving the global investment landscape are far larger than any one country’s election results, and therefore Trump is unlikely to significantly alter the investment landscape within the next 12 to 18 months.
Trump is also unlikely to affect the authority of monetary groups like the Federal Reserve, so it’s likely that riskier asset classes may eventually stabilize and possibly play out as more market-friendly. Equities, for instance, are expected to experience a short-term drop before stabilizing in 2017.