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TRUMPED!

BLOG, MARKETS & ECONOMICS  |  9 Nov 2016

By Jon Aldrich

Trump

By now, we have had just a little time to digest the stunning results of the presidential election with Republican candidate Donald Trump pulling off a shocking upset of Democrat Hillary Clinton. Going into the election most national polls did not give Trump much of a chance, but with elections just like in sports (especially with the Cubs winning the World Series) anything can happen. Heck, just go back a few months to June when it was thought that Britain voting to leave the European Union (EU) would never happen, but we all know how that turned out.

So, where does that leave us now? For one thing, the markets became very volatile as the election results showed the increasing probability of a Trump victory. At one point the futures contracts traded on the Dow showed that the market might open down 800 points on the most famous stock market index. However, as I write this the morning after the election, the markets have recovered and the Dow is surprisingly up a little bit as of now. Geopolitical events almost always have a sharp whoosh down, followed by a very sharp rally. Panic selling in these environments does not usually turn out well.

We will likely see some volatility in the markets as we start to hear about his actual plans as president and whether he tones down some of his rhetoric. If he does show that he can be somewhat conciliatory and is looking to be a unifier and lay out some pro-growth initiatives, stock markets could react very positively the next few months. However, we may also start to see inflation begin to rise if these pro-growth ideas appear like they may become reality. We may start to see bond yields finally start to rise which at least in the short term could hurt bond prices but in the long run may finally be a return to more normal interest rates. Eventually this could be good news for savers and those looking for higher interest rates on their savings accounts and high quality bonds.

What may Trump actually be able to do for the economy? Immediately upon assuming office in January, he has the power to issue an executive order to do things such as pull out of the Trans-Pacific Partnership (TPP) trade negotiations which he has threatened to do during his campaign. He could restart exploration of the Keystone Pipeline and bring trade cases against China. He would have trouble with Congress and the Supreme Court on deporting Muslims and illegal aliens as he promised in the campaign.

However, many of Trump’s major economic promises made during the campaign will require cooperation with Congress and/or the Supreme Court. With Republicans controlling the House and the Senate after the election and now having the ability to fill the vacancy in the Supreme Court, this may make things much easier for him. It may be possible now for him to do things such as repeal ObamaCare, cut taxes and even build the border wall with Mexico but it will still require the help of Congress to get these things done.

He has also been critical of Fed Reserve chair, Janet Yellen and is likely to replace her when her term expires in January 2018. With Republicans now in control of the Oval Office, House and Senate, the Republicans have the ball in their court so it is possible some significant fiscal reform may occur in the next few years. However, they were in control when George W. Bush was in power and failed to accomplish too much in that timeframe. Will this time be different? If not, we can expect major changes again in 4 more years.

It is still way too early to tell what will transpire. You will want to pay close attention to his tone and what he is planning on doing now that he has actually won the office he may not have really expected to win. We don’t want to make any knee-jerk reactions, so we will want to wait and see how many of his campaign promises actually gain any traction. We all know how campaign promises often turn out.

It was a watershed moment in history and American politics. The country is probably more divided now than it has been in a long time. Let’s hope that his promise of “Make America Great Again” actually does help improve our country.  However, this is uncharted territory and only time will tell how things turn out.