As you most certainly know by now, Donald Trump scored a stunning upset in the 2016 presidential race, defeating the favored Democratic nominee Hillary Clinton. For the second time in five months (the first being Brexit), global investors were caught flat-footed by the outcome of a major political election in which most media outlets and pundits had predicted the opposite result. As fear and uncertainty caused uneasiness for investors, U.S. stock market futures dropped significantly on election night. However, after Trump’s acceptance speech, U.S. stock markets opened with modest gains and continued to move upward as the trading day wore on. The volatility surrounding this historic election—and more specially the last several weeks — has been a case study regarding our investment philosophy embracing a long-term, disciplined strategy.
In addition to Trump’s decisive victory, Republicans regained control of both the Senate and the House of Representatives. The last time Republicans controlled all three branches of the federal government was in 2001, when George W. Bush won the presidency. Even with unified control of the government, Trump’s current policies will likely undergo substantial refinement, and will take a considerable amount of time to move through Congress and gain approval.
Presidential elections are always emotional affairs, but yesterday’s outcome feels particularly profound for Americans across the political spectrum. Quite clearly, some are energized by and ecstatic about the prospect of a government outsider taking the reins in Washington. Others are understandably experiencing fear, anger, alienation, frustration, and pain. This is to be expected when a surprising result follows a long, bruising, and bitter campaign. For the vast majority, the rawness of these feelings will fade over time. In the meantime, while it is perfectly okay to experience such emotions, it is critically important to separate the emotional from political, economic, and investment reality. As with Brexit, the implications of this election will only become clear over the coming years, not the next few days. Taking immediate action based on emotions is often detrimental to one’s financial health.
There already are numerous predictions about what a Trump presidency may mean for the financial markets and the economy. In the short run, there will undoubtedly be some volatility and turbulence as the markets digest the implications of the election, and sorts out the winners and the losers under president Trump’s new policies. Investors should recall that the market fell more than 10% in the first few weeks of 2016, yet still reached all-time highs by the summer. With this in mind, we wish to echo what we published in our recent blog, “Does the Stock Market Care Which Presidential Candidate Wins?” by reiterating what history has already taught us—if your portfolio is well diversified and aligned with your goals and objectives, election cycles should not cause a shift in your overall investment strategy. In partnership with our clients, we continue to remain focused on making rational financial decisions on our clients behalf based solely on those factors that remain within our control, such as how much to spend and save, minimizing costs and taxes, and disciplined rebalancing of our clients’ portfolios.