Since Trump got elected as the next president last week, everyone has been trying to figure out – how did this happen? Some have blamed Hillary, others point to the working class white voters, still others lament that there not enough turnout of minorities, FBI’s ill timed announcements etc. But there could be another reason which has caused two of the dramatic upheavals this year – Brexit and Trump Presidency. It could simply be that majority of the population both in US and Europe are unhappy with the inability of their governments to execute policies and improve their lives. Most people are upset with the continued violence, needless wars, massive refugee problems etc. creating the rise of a global populist movement built on political, economic and cultural grievance.
In addition, there is a growing sense that the last three US Presidents have simply not acted appropriately to be deemed worthy of the high office. With Clinton – it was fooling around with Lewinsky, with Bush – it was lying about an unwanted war, with Obama – well, nothing. As the signature quote in the movie Network goes, people appear to be saying “I’m mad as Hell and I’m not going to take it anymore”. And so, we have Trump for the next 4 years and the stock market will continue to search for direction under his Presidency.
For investors, it is going to be hard to figure out what strategy is going to work in 2017. Early signs of Trump’s propensity to favor certain sectors and defund others could all change when he steps into the White House and finds that implementing policy to support his campaign promises are not as easy as calling his opponents – Crooked Hillary, Low Energy Jeb or Lying Ted. And then, we could have new Fed Chair, SEC Chair and Supreme Court Justice appointments, all of which could add to the volatility of the markets.
However, new data provides some clarity to the situation – 1. Interest rate hike in December is almost a certainty following Janet Yellen speech on Thursday this week. Long term bonds have already begun to sell off as investors take money out of bonds and put them into equities. 2. The number of Americans filing for unemployment benefits fell to a 43-year low last week suggesting the economy is strengthening which could further boost the case to invest in equities.
Future Wealth View
At Future Wealth, we have not been fans of long term bonds all year and have instead chosen short and intermediate term bonds as safe havens for our clients. That said, as we get to the end of the year, we will be looking to reduce our client exposure to bonds across the board as it is likely that we could get further rate hikes next year which could depress bond values further. Greater exposure to equities with downside protection could be a viable strategy entering 2017.