President Trump: what does it mean for investment markets?

November 9, 2016

Donald Trump’s come-from-behind victory in the US presidential election race has sparked yet another rough patch for global markets. Trump’s election shocked most pundits and pollsters and sparked investor reaction, similar to the fallout from the U.K.’s June vote to leave the European Union.

Markets plunged with the US dollar down 1.6% and S&P 500 futures down more than 5% as results rolled in, although they subsequently rebounded.

New Zealand markets also fell on the day, with the NZX50 closing down 3.3%, the worst daily fall since the GFC. However, the market followed the global lead and bounced back in early trade the following day, recovering this loss. 

The market reaction to this point has been surprisingly strong and continuing volatility over the next few weeks or months is likely.

But the US election result is unlikely to have a lasting impact on markets and – as the aftermath of Brexit has shown – even dramatic short-term responses to political events, can be quickly reversed.

It’s not unusual for presidential elections to give rise to market volatility, partially due to uncertainty around policymaking under a new government. Although most market commentators have tended to focus on the risks of a Trump administration, there are aspects of his agenda that could be viewed favourably by markets.

He has expressed support for tax cuts, tax reform, a reduction in regulation and increased infrastructure spending. Should the economy falter, he will also be in a position to push fiscal stimulus through Congress, which would have been a challenge for Clinton with a Republican House.

However he also indicated an intention to increase trade restrictions to protect American workers, which would be a negative for business and markets in general with emerging market economies having the most to lose from aggressive trade measures.

Remember, the US presidential election is only one of many factors – US interest rates and continuing Brexit negotiations for example – that could impact markets over the next few months and beyond.

Investors should seek financial advice before making decisions based on potential election outcomes or predictions on how the market might respond.

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