By Greg Rodger on November 11, 2016
We wouldn’t want to be shareholders of any of the polling companies this morning as, once again, the pollsters were proved to be completely wrong.
Donald Trump’s victory has certainly taken many by surprise. The more that the election results were coming in last night in favour of a Trump win, the more the global stock markets sold off. At its worst, the S&P 500 Futures were down 5% (the maximum loss permitted in these contracts); however, we have seen a remarkable recovery since that low point with the broad U.S. markets actually opening with little change. Outside of the U.S., stocks in Asia are down between -0.5% in China to -5% in Japan. European stocks are down about -1%, but appear to be recovering.
In our most recent edition of Compass (our quarterly market update publication), we drew some similarities between a potential Trump victory and that of Ronald Reagan in 1980. Many feared a Reagan victory as he was viewed as being a little radical and an outsider (although he did at least have some political experience). When it became more obvious that Reagan might win, stock markets fell modestly, but the longer term impact was positive. During his entire 8-year presidency, the S&P 500 provided a total annualized return of about 10%.
Investors fear uncertainty, which is why a decline in global stocks on the morning of November 9th was not a surprise. However, as cooler heads prevail, attention will be refocused on what matters – which is the growth prospects for any individual company. As we always say, our client portfolios are not invested in ‘the market’ but rather own some outstanding businesses whose shares happen to trade in the public markets – and, of course, large portions of most client portfolios are invested in other instruments that are not directly impacted by the day-to-day volatility of the stock market.
Will any of the changes proposed by Donald Trump during his campaign really result in a great company like Unilever selling less soap and laundry detergent? Unlikely. In fact, Trump’s pro-economic growth and pro-business platform could be very good for corporate profits.
His vow to reduce regulation, cut corporate and personal taxes, permit the repatriation of corporate funds that are currently held offshore, and increase infrastructure spending all speak to an effort to boost economic activity in the U.S., which could be very positive. The downside of this will likely be increased deficits. For this reason, as well as the uncertainty that comes with this election win, the increase in interest rates by the U.S. Federal Reserve that was widely expected to happen in December may be put on hold.
For those fearing his protectionist view on trade, it is worth noting that international trade agreements cannot simply be “ripped up” as he once suggested, but would need to be renegotiated which will likely take many years to accomplish.
Our view is that the market will digest this news over time, and while there may be short term volatility, the long term outlook is positive.
HighView is an experienced boutique investment counselling firm for affluent Canadian families and foundations. We would be happy to discuss our goals-based investment approach with you and your professional advisors.
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