The idea of a possible Trump presidency has rocked the markets this week. What started a late night fodder for the comedians year ago when he first put forth his nomination is now on the verge of turning into a massive nightmare for investors.
Given his extreme views, everything from the Mexican Peso to US Supreme Court nomination will be thrown into disarray and the markets are not going to take it kindly. In many ways, the Trump presidency could be the worst thing for the stock market this year. Already, the markets have been very skittish this year since June.
Whenever we have a situation when stocks of different types (both cyclical and defensive) and assets of different types (bonds, stocks, commodities and currencies) increasingly move in lockstep with one another, it’s very difficult for the average investor to put money in the right instrument and risk protection offered by portfolio diversification becomes harder to achieve.
With the stock market and asset prices seemingly less dependent on fundamentals like earnings and economic growth and more on event risks with a binary outcome such as the Brexit vote and the upcoming U.S. presidential election, the markets appear to be ill-equipped to withstand a shock to the system – one that a Trump Presidency will bring.
Future Wealth View
While there are many reasons to change one’s investing strategy, at Future Wealth, we do not believe the presidential election is one of them. As always, we try to focus our investments on economic cycle, job growth, technology advances etc. and invest for the long term. That said, one of the key measures we have put in place for our clients is downside protection. In the event of massive sell off in the market, core large positions will be protected and should offer some reassurance to our clients as we await the results of the election. None of the recent presidential elections in the past half century has had so much riding on it for investors. Nov 8 will give us the answer.