By Mickey Welcher
The election is over and we have our new President Elect, Donald Trump. So the question begs itself: Now what?
From a stock market standpoint, it’s really not certain. That’s because it has pretty much priced in a Clinton victory. Much like the surprise Brexit vote in Great Britain, the US market will most certainly sell off assets as it digests the news.
If you want any proof of my theory, look at this. The market rallied 2 percent on Monday, after the FBI announced there were no charges to be filed regarding Hillary Clinton’s email server. This news was what the market wanted to hear as we saw buyers jump back in. The market was expecting a Clinton victory, which did not occur, so Monday’s gains will be gone quickly.
The big question is how will the market reacts to President Trump? This is where things get very confusing. No one really knows much about his economic policies or how we can afford to lower taxes across the board without hurting the economy. When there is confusion on economic issues, the market usually falls.
The one positive for our new President is the Republican Congress. Once President Trump gets settled, hopefully he will be able to get things accomplished having the House and Senate on his side. Less political gridlock could help smooth market volatility going forward, which would be a positive for investors.
The next hurdle will be the Federal Reserve raising rates. The board has made it clear they are going to do so, possibly as early December. We can expect the market to drop a bit, but how much and for how long will depend on what the Fed says after the meeting. If they hint that this is the start of future increases, we could see the market continue to fall and break below the pre-election lows. If the Fed doesn’t say much about future increases, the market could go back in limbo.
We also have to look to see if companies lower revenue guidance which is an indication that businesses feel the economy is slowing down. While some of that can be traced to the election itself, it’s something we’ll need to watch closely. Should that lower revenue guidance trend into 2017, the market will mostly sell off as investors take their profits and move their money to cash or bonds.
President Trump is a real wildcard as our newly elected leader. No one knows how the stock market will react to his victory over the long term due to his lack of political experience and explaining his economic policies. All this could change once he gets comfortable as President, but the market will be weak until this does possibly happen.
There looks to be higher downside risk with Donald Trump as our President, especially over the first few months. Where we go from there is anyone’s guess.