BOSTON NEWSLETTER: WHAT IS NEXT?

Boston Newsletter: What is next?


The final newsletter of 2016 will focus on the election outcome and market reaction through my perspective - what is ahead for the US and the financial markets? 

Being a European living in the US, the election outcome resulted in my email and voicemail quickly filling up the morning after. Colleagues, family, and friends where all asking me what had happened. Most did not understand that the American people could elect Trump as president. The lack of understanding from Europe and most of the world is best shown in the graph from the Economist. The polls show that in most European countries less than 10% would clearly vote for Trump. Now do keep in mind that this poll also pointed in the direction of Clinton winning. Overall it gives a clear indication of how most of the world would have voted.

 

 

As a result, people around the world found it very hard to grasp that Americans could elect a man, who many people saw as a bully, degrading to women, calling out different racial groups, and who had no prior political experience. Furthermore, Europeans have a hard time understanding the US election system, in which Clinton actually won the majority of the votes (Popular-Vote) yet still did not become President. There is no easy answer to all these questions, but at the end of the day the US democracy has spoken, and Trump will become the new president.

 

So what is ahead for the US and the financial markets going forward? The only clear answer is uncertainty. Talking to portfolio managers, macro specialists and investors in the US, no one seems to fully agree on the outcome. Some are very optimistic (despite not having voted for Trump) as they believe Trump will invoke a fiscal stimuli package with lower corporate taxes etc. and be market friendly, at least for the US economy. The result being that US growth will be revised upwards and that US equity will perform very well. On the other side, people are saying that they are not sure how many of Trump’s suggestions will actually pass, as there is still unrest in the Republican party. Furthermore, some argue that Trump has already backed off on some of his pre-election promises and demands, which again leave uncertainty to what he will actually do.

 

One thing seems certain, more volatile market environments are a given and performance for mutual funds will be more dislocated, as some will bet on positive outcomes (risk on) while others will remain neutral risk, and yet some will be in risk-off modes. It is therefore even more important than ever to understand and monitor selected asset managers and fully understand their allocation and risk exposure.

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