2016 US Election Results
Wow, the mainstream world didn’t see a Trump presidency coming.
Most polls indicated a win by Hillary Clinton, but the media seem to have western politics all wrong this year starting with Brexit. There is a general feeling that people want and need change, and they will vote for whatever can bring about that change. So the road ahead looks rocky and uncertain, but have your fears from yesterday just been played out today? We wait and see.
At AvSuper, we maintain that rises and falls occur in investments all the time in reaction to world events, company forecasts, natural disasters and human disasters. These events can initially shock us, but over time, opportunities arise, we rebuild and strengthen and grow from the experience. This is no different from the volatility markets witnessed with Brexit back in June this year. For all investors, it is important not to react to panic and be irrational; instead, remain clear and focussed on your long term goals, avoid reacting emotionally and always seek professional input from your adviser.
Remember, selling or indeed switching your investment options in response to sudden falls in markets can just lock in an investment loss and reduce your capacity to make those losses up in future. The noise generated through the media can make adherence to long term investment strategies difficult, we understand this. So, stay strong and keep your eyes open (alongside your financial advisor) as often such scenarios throw up opportunities.
What are the potential economic implications?
At face value, Trump’s policies come with many economic and market uncertainties.
Much of the potential impact hinges on Trump’s ability to implement his planned tax cuts and his intentions regarding trade. The tax cuts could provide a meaningful boost to growth via higher consumer spending and business investment, but would also likely to lead to a large increase in the budget deficit. Higher infrastructure spending would also be beneficial for growth.
His plan to deport illegal immigrants could place upward pressure on wages but also lower growth as the population and workforce contract. Trump’s trade policies would be expected to dampen international trade and growth, with a magnified impact on emerging markets given their greater reliance on international trade as a source of growth.
What are the potential implications for growth and markets?
We’ve seen some analysis which highlights the potential inflationary impact if Trump’s policies are implemented. Any boost to growth from tax cuts, upward pressure on wages from deporting low-wage illegal immigrants and higher prices of imports from any imposition of tariffs would be inflationary and place upward pressure on interest rates and bond yields.
A key risk for the global economy is a trade war if a Trump Administration imposes tariffs on Chinese goods, which could lead to retaliation. Any reduction in global trade volumes is likely to be a have a meaningful negative impact on global growth.
In summary, in the short term, tax cuts and higher infrastructure spending could provide a boost to growth and ‘risk’ assets such as equities, while the uncertainty and negative market reaction to Trump’s election could further defer additional rises in interest rates by the Federal Reserve.
However, over the medium term, if implemented in full, Trump’s economic policies could reduce US and global growth which would be negative for ‘risk’ assets, including equities. The impact on interest rates and bond yields is unclear given the conflicting forces of lower growth but higher inflation. Given that full implementation is considered unlikely for political reasons, the overall impact on growth and investment markets will be dependent upon which policies are ultimately implemented and to what extent.
Should I change Options?
Superannuation is a long term investment, here at AvSuper we are riding this current wave of volatility with cautious optimism.
Everyone is at different stages in life in terms of meeting retirement savings objectives. Before you make any decisions in changing investment options be sure to speak with our Member Advice Consultants, who are qualified financial advisors, if you think you need assistance.