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The vote heard around the world

15 November 2016 in Trading Ideas

What you need to know

  • Financial markets are savoring a Republican-led Congress and White House.
  • The Dow Jones Industrial Average surged on the billionaire’s election win.
  • Investors are optimistic that the “Trump Bounce” will last until year’s end.

Election and the markets

In an era of big data and aggressive polling, an election surprise of such magnitude last week seemed far-fetched. Most polls predicted a comfortable Hillary Clinton victory, and expectations from Washington to Wall Street waited to act on the Democrat’s win.

It wasn’t the first shock experience of 2016 though. Only months ago did financial markets violently react to Brexit. The same thing happened following Trump’s victory. As votes were counted, the futures market halted trading last Wednesday when prices began to freefall. The next day, markets soared with what investors are now calling the “Trump-Bounce[2].”

Not only did Trump win the White House, but his fellow Republicans maintained control of Congress. Instead of legislative gridlock, we’re likely to see action across a lot of fronts offering investors a clearer picture of what legislation is likely to stay or shift as Washington changes power.

Winners and losers

As the country tries to digest the surprising loss by the Democrats, let’s look at how different motifs may fare when “The Donald” and his administration are in charge.

Winners

  • Shale OilShale Gas— Expect the new administration to quickly lift regulatory barriers to exploration and pipeline development.
  • Biotech Breakthroughs— With a diminished risk of price controls we will begin to see biotech stock prices reflect their clinical trial results.
  • Too Big To Fail— The sweep of the White House and Congress is positive for all financial stocks where you should expect to see more growth, higher rates and less regulation.

Losers

  • Obamacare— Obamacare as we knew it is likely to be repealed and replaced with a dramatically different piece of legislation
  • Buyback Leaders— Near-zero interest rates have enabled corporations to borrow heavily in order to shrink their share counts, but now ultra low rates are expected to end.
  • Cleantech Everywhere— The prospect of an abrupt shift in U.S. climate policy under the President-elect doesn’t look favorable for clean energy

The market’s honeymoon with Trump

What forces are better at readjusting to surprises than the markets? None. While some American voters are still working to feel more comfortable with the election results, many investors are closely watching the market’s reaction to the President-elect, betting on Trump’s businessman expertise to grow the economy. Wall Street’s positive reaction has even sparked speculation of a rally for the rest of the year.

Next steps to consider

  • Embrace your internal Spock: Put aside any emotional response to the election. React hyper-rationally.
  • Identify what your investment goals are and diversify accordingly.
  • Remember: past performance doesn’t guarantee future success. Just ask the pollsters.

Sources

[1] MarketWatch. “How to profit from Donald Trump’s victory.” November 11, 2016.

[2] USA Today, After ‘Trump Bounce’ will stocks stage year-end rally? November 14, 2016

 

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