America has spoken, and on Monday 20th January Donald Trump will become the 47th President of the United States. Investors will now need to position themselves for what comes next.
Simplistically put, it seems likely that President Trump will initially focus on three areas – tax, immigration and tariffs. I think many will be making the case to back US businesses over the next few years as any extension of earlier tax cuts will leave the incentives to work, save and invest firmly in place, whilst proposals to reduce the corporate tax rate for companies that make products in the US should also be positive. Mass deportation of undocumented migrants could lead to higher wages as the readily available pool of workers reduces, and tariffs will help make domestically produced goods more attractive. Perhaps this prospect was the reason why US small caps in particular outperformed in the days post-election.
It may not all be good news though. Large technology businesses have dominated US stock market returns in recent years and with Trump historically no great fan of these companies, targeted scrutiny of their practices could remain a priority. There is also a widely held view that his policies will be inflationary over the longer term, perhaps acting to slow the pace of the interest rate reductions many had anticipated, and it also seems likely that further pressure will be put on the level of US national debt.
It will be some time before we know the full effect Trump’s policies will have both on US and global equities. To guard against uncertainty, building a balanced portfolio that does not solely depend on the companies currently driving market returns, often proves a tried and tested method.
