Election Impact: Post-Election Outlook and Strategies

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Filbrandt
Nov 14, 2016

Election Impact

Nobody is quite sure what changes will occur under the administration of President-elect Trump. 

The financial markets initially lost more than 800 points in overnight futures trading last week upon learning of Trump’s victory, but did a quick about-face and posted gains the rest of the week. That was due to the perception that a business-friendly president will be taking office in January.

Since last Tuesday, change has been the number one topic on the minds of people on university campuses across the nation -- and in the financial markets. One important change that may have flown under the radar for many was the immediate surge in bond yields. Yields and bond prices react inversely, which means bond prices dropped simultaneously.

In the past week, we heard from many university professors who share these concerns and fears about change. They are concerned about what will happen to the markets in which they have their retirement and estate assets invested. Following are some strategies we enacted on behalf of our clients in the weeks and months leading up to the election.

Risk reduction has been the overriding theme of our investment management strategies this year. Projecting months ago that the historically low interest rates would end at some point, we sold bonds and bought TIAA Traditional, which provides a guaranteed interest rate.

In stocks, we shifted our focus from expensive “growth” stocks (newer, fast-growing companies such as Google, Amazon and Netflix) to cheaper “value” stocks. This lowered volatility, and you are now well-positioned to benefit from the fiscal stimulus that will occur if Trump’s proposal to spend $1 trillion to overhaul the country’s infrastructure occurs. 

Trump’s idea is to trigger $1 trillion in private sector infrastructure spending with $140 billion in tax credits for the companies willing to do the work. If it occurs, the value of construction-related companies (generally considered “value” stocks) will jump.

At the time of the Brexit election in Europe, we trimmed international equity exposure, and turned that into cash. We are presently sitting on that cash, evaluating opportunities as they present themselves. Our weighting in international markets is considerably lower than most other money management firms. We believe that if England does indeed leave the European Union, it is a good possibility that the Euro and the European Union will both break up. That, of course, would send European markets into turmoil.

Looking ahead, we expect growth in the economy and the markets in the next 12 to 24 months. The infrastructure spending will spur that, along with a renewed sense of optimism among corporate CEOs. Business leaders have been afraid to make capital investments for years because they perceived an anti-business administration which provided them no future clarity. If a CEO sees a clearer path to growth through capital investment, it will occur.

The U.S. economy has been stuck at a 1.5 percent growth rate for years. We see the potential for that growth rate to possibly double within 18 months. Of course, the stock market will reflect that growth.

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