In what can only be described as a national polling disaster, Donald Trump pulled off a shocking upset Tuesday night to defeat Hillary Clinton. Trump will become the first president in decades to hold the Oval Office without any prior government experience. While the market preferred Hillary Clinton and the presumption of “status quo” under a divided Congress, the voters cast their ballot for something different.
Everyone’s hope—including Hillary Clinton’s, as she indicated in her concession speech—is that Trump will be a unifier and not a divider, and that his election stump rhetoric is just that: rhetoric. Others hope his pro-growth economic policies can ignite the economy, while reducing excessive regulation and overhauling our overly complex tax code.
The market has quickly found the silver lining in a Trump presidency, sending stock prices higher the day after the election. This is likely due to the conciliatory tone of Trump’s acceptance speech and the belief that the policy initiatives below are positive for the economy, job growth and for consumer spending:
- Lower corporate and individual tax rates.
- The repeal or modification of the Affordable Care Act.
- Increased spending on infrastructure and national defense.
For long-term investors, the outlook for the economy is what matters most. In that regard, the economy is on firm footing (although growing well below its long-run potential), unemployment is low, job growth is strong and the Fed remains accommodative (even with a December rate hike factored in). In aggregate, there are no indications that a recession is on the horizon. We will be on the lookout if the circumstances change.
Some worry, however, that a Trump presidency will usher in all sorts of damaging policies, notably with respect to international trade, foreign government relations and possibly Fed intervention—all of which would threaten our economic viability.
Remember, in an $18 trillion free-market economy, Trump won’t have as much control over the economy as he’d like voters to think. And what power he does have is generally limited by the checks and balances afforded by the Constitution.
Corporate America and the thousands of small businesses that create most of our new jobs will adapt as needed. They will navigate through, around, under and/or over whatever policies or roadblocks are put in their way. They will find a way to succeed. And of course, consumers will continue to do what they do best: spend. In other words, life goes on, and everything will get back to normal in time.
If that doesn’t make you feel better, I would remind you that our economy has grown consistently over the long term. As corporate profits have risen, so too have stock prices. As such, the stock market has been an excellent vehicle for creating long-term wealth regardless of who is in the White House and under a variety of presidents. Below, we show the growth of a dollar invested in the S&P 500 since 1926.
Markets Have Rewarded Long-Term Investors
under a Variety of Presidents
Growth of a Dollar Invested in the S&P 500: January 1926-June 2016
There is no doubt that emotions remain high immediately following the election. Some individual investors may even be questioning their current investment strategy, especially if their candidate did not win. Our advice is to take a step back and avoid making any rash short-term decisions that may disrupt a carefully laid-out long-term financial plan.
As always, don’t hesitate to contact us with questions.