From the desk of Peter O’Callaghan
So here we are. A new U.S President, however clearly not the one the bookies were tipping. The election of Donald Trump as the next U.S. President certainly sent shock waves throughout the world, and in particular financial markets. There are shades of the BREXIT result with stock markets falling as ‘risk off’ gained momentum. Markets hate uncertainty and with everyone tipping a Clinton win, this was uncertainty magnified.
However, as the dust settles, things may not be as bleak as people initially thought. I think it is important to keep in mind that the US President’s powers are not unlimited so some of the more ‘out there’ policies are not guaranteed to go anywhere. There is a separation of executive, legislative and judicial powers in the US. Before implementation, all federal legislation will have to pass through Congress. Consequently, even if Mr. Trump were to promote any extreme policies, it would be difficult to implement them given the US legislative structure. Therefore, it is important that investors stay focussed on company fundamentals and not get caught out by the noise/volatility created by such events.
In light of the huge expectation around a Clinton victory, expect the actual result to induce an initial bout of volatility. From a fiscal, monetary, trade and legislative perspective, Mr. Trump has been widely viewed as someone who could bring unprecedented policy uncertainty.
The US Federal Reserve will have to weigh up the impact the election result will have on monetary policy. US inflation and wages have continued ticking up and until recently a December rate hike was on the cards. Looking into 2017, the US economy remains in reasonable shape and could continue to improve at a moderate pace going forward. Growth is likely to be supported by the strong labour market, robust consumption and the continued recovery in the housing market. In general, there is still abundance of investment opportunities in the US but one has to be conscious that we are in the advanced stages of the business cycle, and at aggregate levels, margins are high and valuation multiples are not low. Moreover, growing wages and interest rate pressures, combined with the still strong US dollar, could weaken margins in some sectors. It is important to be selective in the current market environment.
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This document has been prepared by MSI Taylor Wealth Management AFSL 231138 (Financial Wisdom) based on our understanding of current regulatory requirements and laws as at 10 November 2016. The views expressed in this document are those of the author and not of Financial Wisdom, and Financial Wisdom does not endorse these opinions. This document is not advice and provides information only. It does not take into account your individual objectives, financial situation or needs. You should carefully assess whether the information is appropriate for you and consider talking to us before making any investment decision.
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