the election
Well, the election is over, although the local outcome is still in doubt in places like Michigan. Donald Trump will be the next president.
By around midnight last night, as it was becoming apparent that Hillary was going to lose, US stock index futures had dropped by about 5%. As I’m writing this, they’ve rallied this morning to down around 1.5%, after Trump made a surprisingly conciliatory victory speech.
The dollar is slightly weaker against major currencies, but not by much. Bonds are rallying. This may be on a notion that they’re a safe haven; it may also be on the idea that Trump uncertainty makes it more difficult for the Fed to raise interest rates in December (although wage data seem to me a strong indicator that the Fed can’t delay any longer).
us as stock investors
As stock market investors, our job is not to dwell on (be distracted by) Trump’s limitations. Rather, it’s to try to figure out what a Trump victory means in terms of economic policy, and how that will play out in future company-by-company and sector-by-sector performance.
The key here is not to focus on the many things we don’t know–like how much of his campaign rhetoric Trump actually means–and to try to find areas we can be confident his administration will emphasize.
The course of today’s trading will give us our first clues to what Wall Street is thinking.
My initial take:
Economists I’ve read seem to agree that a fully implemented Trump platform would reduce the level of national GDP substantially. One estimate is that GDP would be 5% lower than what it would be under the status quo by the end of his second term. That’s a loss of close to a trillion dollars a year. If guesses like this are anywhere near correct, they imply that a lot of what Trump has been saying won’t get done.
Increased infrastructure spending is a likely area of Washington emphasis. Beneficiaries would be makers of construction machinery and materials.
While there may be some direct plays, I think the bigger effects will likely be indirect. This means consumer spending at mid- to low-end retail in areas where infrastructure projects are initiated.
A second implication is that, finally, fiscal policy may come into play as a means of boosting economic growth. One consequence would be that the Fed would have greater ability to raise rates–probably an issue for the second half of 2017.
Donald Trump has talked about encouraging use of conventional hydrocarbon fuels. I don’t think his actions will do much good for high-sulfur coal. But it may accelerate shale oil and gas drilling, and construction of pipelines to deliver this output to market. Ultimately, this will result in lower energy prices, not higher, and, I think, the resulting long-term decline of the oil and gas business. But for the next few years at least, US-oriented oil and gas developers may do very well.
Trump has also said he’ll cut taxes for the wealthy. If so, this may prolong the real estate boom in coastal cities.
Let’s listen carefully to what today’s trading on Wall Street says to us.