The US Election
Donald Trump elected President
After a very long campaign, Donald Trump has been elected as the president of the United States, with the Republican Party retaining control of the House, and the Senate, in Congress.
What does this mean?
Here are some of the policies that Trump wants to bring to the table:
- Taxation: Trump promises significant personal tax cuts including a cut to the top marginal tax rate to 33% from 39%, a cut in the corporate tax rate to 15% from as high as 39% and the removal of estate tax.
- Infrastructure: Trump wants to increase infrastructure spending
- Government Spending: Trump wants to reduce non-defence discretionary spending by 1% a year, but increase spending on defence and veterans.
- Budget Deficit: Trump’s policies are likely to lead to a higher budget deficit and public debt
- Trade: Trump wants to renegotiate free trade agreements and has proposed various protectionist policies, eg: a tariff on Chinese goods.
- Regulation: Trump wants to reduce industry regulation, which would be good for financials and energy.
- Immigration: Trump wants to build a wall with Mexico, deport 11 million illegal immigrants, and require firms to hire Americans first.
- Healthcare: Trump wants to repeal Obamacare and allow the importation of foreign drugs.
- Foreign Policy: Trump wants to reposition alliances to put ‘America First’ and get allies to pay more, would confront China over the South China Sea and would bomb oil fields under IS control.
Some of Trump’s economic policies could provide a boost to the US economy, through a combination of big tax cuts and increased defence and infrastructure spending, would provide a much needed fiscal stimulus. This, combined with a reduction in regulation would provide a bit of a supply side boost to the economy. However, these economic policies may blow out the budget deficit and there is a risk that his renegotiation of trade agreements will set off a trade war, and Australia being much more dependent on trade than the US, will be particularly vulnerable.
What could be the markets’ reactions?
In the last few weeks, shares have dropped off when Trump’s popularity rose, and shares rallied when there was good news about Clinton, meaning that a Trump victory would potentially not be favoured by the markets. Beyond the initial reaction, share markets are likely to settle down. Depending on what economic policies Trump pursues, we may more likely see the market reaction present investors with a ‘buying’ opportunity.
Conclusion
While Trump being elected President has come as a bit of a shock, there is a good chance that the economic realities and the checks provided by his fellow members in Congress, will see his policies become more pragmatic. Remembering that with the Brexit vote, a Yes vote would result in a disaster for shares and the global economy. Instead after the initial market sell off the markets improved and moved on. So yes, there is a danger in making too much into this election and unfortunately only time will tell how this pans out.
At Lumen we always look forward with a long term view for investments, and investors should be focused on staying on their path of their financial objectives. As always, investors should ensure that their portfolios are well diversified across asset classes and geographies and keeping in mind the long-term perspective.
Disclaimer: This information is of a general nature only. Whilst every care has been taken to ensure the accuracy of the material, Lumen Financial Strategists will not bear responsibility or liability for any errors or omissions, or for any action taken by any person, persons or organisation on the purported basis of information contained herein.