US Election Thoughts - Kerr Financial
Investment Management
US Election Thoughts
Category: Investment Management, Kerr Market Summaries Tags: election thoughts, US election

Like many of you, we have spent last night and this morning processing the news of the historic US election decision.  The social and political implications for the country (as well as assessment of the efficacy of polling industry methodologies!) will be reviewed for some time to come.  If we look strictly at the stock market and economic implications, the uncertainty around this unexpected decision caused US stock market futures to be sharply down overnight but as of the time of writing (around 1:30 pm EST) both US and Canadian stock markets have stabilized and are both up just under 1%.

We have been analyzing commentaries from many of our investment partners in assessing what the impact of the election outcome will be on the economy and security markets going forward.  Overall, we don’t want to rush to conclusions but rather want to keep an eye on the new administration’s decisions around cabinet appointments, policy introductions and priorities as they unfold.  As with any unexpected outcomes, there will be risks and opportunities to watch for – and we will be discussing and keeping an eye on these with our money managers.

In terms of economic and market highlights of some of the calls and commentary we have been reviewing:

• Trump’s conciliatory tone in his acceptance speech and both Hillary Clinton’s and President Obama’s comments highlighting respect for a peaceful transition of power have helped to stabilize markets

• Trump campaigned hard on immigration and trade and several analysts feel he will move in the early days of his administration to take action in these areas – US protectionism and the future of NAFTA will be something we need to keep an eye on and will be negative influences for Canadian industries such as auto and lumber as well as a generally negative factor for GDP overall

• On the other hand, the commitment to increased infrastructure spending and tax cuts would generally be positive for GDP growth – having a Republican President, House and Senate may allow these changes to be implemented more quickly (though policy makers will keep an eye on the level of deficit and debt in terms of what gets approved)

• Reduced regulation should be a positive factor for health care companies (including pharma and biotech) and possibly for big banks and the energy industry (health care companies and financials have rallied back this morning)

• If Trump proceeds with plans to allow companies to repatriate foreign profits at a low (possibly 10%) tax rate, this would generally be positive for large multinational companies and for tech and health care companies

• In the short term, interest rates will stay lower though there may be more long term upward pressure on interest rates

• A few speakers highlighted that Trump likes to be seen as a winner and that this may make him more cautious in terms of actions that would have negative market and economic impacts

Coming up to the election, we have selectively kept slightly higher cash balances but otherwise remain invested with defensive managers in equity in quality companies and in shorter duration corporate bonds.  We don’t see immediate reasons to change this positioning but will remain attentive to developments and in touch with managers to ensure portfolios remain well positioned for the future.

 

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