House View by the Chief Investment Office
What will a Trump presidency mean for markets? ... And why we should care.
22 November 2016 | Tags: US Equities
Reading time: 4 minutes
Donald Trump’s surprise victory in the US presidential race marks a dramatic shift in the status quo for the world’s largest economy.
The election of Donald Trump added to a year of political surprises around the world, and his policy agenda is a key focus for global markets.
With a Republican majority in both houses of Congress, Trump will have latitude to implement executive decisions that could significantly alter the status quo of US economic and social policy, with global implications.
This period of change could be long lasting. Senate Democrats will need to defend twice as many seats as Republicans in the next election, suggesting that the Republicans have a high probability of preserving their majority for the next four years.
We believe that investors are well-advised to consider three broad policy areas: Expansionary fiscal policy, pro-business policies, international trade.
The promise of an expansionary fiscal policy. Trump ran on a platform of tax cuts and higher public spending. He pledged to invest USD 1trn in American infrastructure over the coming decade, and reiterated his commitment in his first speech as President-elect. The fiscal stimulus provided by lower taxation and higher federal spending will have broad macroeconomic and investment implications. Military contractors and construction firms stand to benefit, for example. We also expect to see incremental pressure on wage inflation, increasing the appeal of Treasury Inflation Protected Securities (TIPS) versus other US government bonds.
More expansionary fiscal policy and pro-business legislation under Donald Trump’s leadership should prove supportive of Treasury Inflation Protected Securities (TIPS) and some sectors of the US equity market. Uncertainty is higher for emerging markets, but we expect growth to provide support through 2017.
The end game?
The world’s long-term economic problems are well known – rising debt, aging populations, and muted growth. But it is not these problems alone that will drive markets in 2017.