November 9, 2016

The Dawning of a New Era

Following a historic election battle, the United States has selected Donald J. Trump as its 45th President. How will this decision impact global markets going forward, and what effects might we see here at home?

white house

Despite the surprise of the election results, we are optimistic that this is a great opportunity to bring new ideas and renewed cooperation to politics. We are encouraged by President-elect Trump’s acceptance speech in which he committed to working together with all parties. We are confident that our system of checks and balances will help to ensure gradual and rational changes as we move forward.

As we learned with Brexit, the initial shock of a news event tends to wear off quickly. Arnerich Massena’s investment philosophy is to take a long-term outlook. As we examine what may change in this new era, we are careful not to be reactive to short-term fluctuations or single events, but to focus on the big picture and how to help investors take advantage of long-term trends. That said, let’s take a look at what we anticipate.

Over the longer-term, it is likely that that President Trump will differ substantially from Presidential candidate Trump. While there will undoubtedly be some policy changes, it is not uncommon for campaign promises to become diluted in practical application. For instance, changes in trade agreements, an overhaul of the Affordable Care Act, and new immigration policy will likely take time and probably require some compromises. President Trump will have to work with Congress, which will help to prevent and/or slow any radical changes.

Some of the areas in which we may see changes from Trump’s new economic playbook include: trade agreements and tariffs, immigration, financial deregulation, healthcare, and infrastructure. We expect these changes will bring with them opportunities for investors.

Trump has indicated that he may increase spending and cut taxes, which could stimulate growth and possibly result in inflation. This can be helpful for real assets and commodities, while it may negatively affect fixed income and yield-oriented stocks such as REITs, Energy, and Utilities.

Globally, uncertainty might reign for a time, but we see opportunities here too. Expanding domestic spending and inflation could reduce the value of the dollar, a boon to international and emerging markets investors. In emerging markets, despite possible changes in trade agreements, long-term growth prospects remain strong, with fundamentals in place such as population growth; a younger, working-age population; and a growing middle class.

We believe Arnerich Massena’s portfolios are well-positioned to weather these changes and take advantage of the opportunities. Events like this perfectly illustrate why we focus on a long-term outlook, diversify globally, and are cautious about possible interest rate increases. Additionally, our active managers are able to be flexible and tactical during times of change. We are confident in the strength of our portfolio construction and in this situation as ever, we will seek to avoid being reactive and focus on investing for the long term.

The finale of this election has been startling to many and may seem disruptive, but change offers us an opportunity. As America continues to digest the results and find pathways to becoming a stronger country, here at Arnerich Massena, we’ll continue to monitor global markets and keep our clients informed as we enter the dawning of this new era.

-Arnerich Massena CIO and Analytics Team