Investing in the Trump Era
Nearly eight weeks after his election, emotions about President-elect Donald Trump continue to run high.
There’s no doubt that Trump was a divisive candidate, and he is already saying and doing things that have pleased some and discouraged others. But as investors contemplate the next four years under this president, they should pay attention to facts and numbers and be on guard against emotional decision-making.
It’s common for investors to overestimate the impact that Presidential election results have on investment markets. Prior to the election, many commentators predicted a market crash in the event of a Donald Trump victory. That didn’t happen, of course; to the contrary, the market has risen. That’s an example of the strength and adaptability of the markets: They have a long history of digesting jarring and unforeseen events, and then moving forward.
While much of Trump’s precise agenda remains unclear, we can draw some general conclusions about what the next four years may look like. With the president-elect working with a Republican majority in both the House and Senate, it’s reasonable to expect “pro-growth” initiatives like reducing regulations and lowering taxes. On the other hand, Trump’s campaign rhetoric about immigration and trade, if translated into action, could pose obstacles to economic growth.
But the realities of governing and the legislative process mean that President Trump may end up being very different from candidate Trump. There is always a degree of uncertainty attached to Washington, after all, and it is always exacerbated by potential surprises on the geopolitical front.
We would also argue that the economy and the markets operate largely independently of politics. Good companies succeed not because of whether there’s a Republican or Democrat in the White House, but because they make goods or provide services that people want or need to buy. Smart investors will stay focused on owning those companies. And they will bear in mind that there are only two prices that matter: The price at which an investment is bought, and the price at which it is sold.
It’s human nature to assume that a given election result will either be great for everything, the stock market included, or bad for everything. That may be especially true this time around. But it’s especially important to be wary of such “all or nothing” thinking.
Underneath all of the sound and fury to come, the future will continue to hold both opportunities and risks. By remaining vigilant and focused on long-term success, investors can continue to achieve the results needed to realize their goals.