US voters went to the polls on November 8 and elected Donald Trump as the next President. Voters also delivered Republicans control of both houses of Congress. In a reprise of the UK’s Brexit vote, Trump’s election shocked most pundits and pollsters. Similarly, the market plunged, with S&P 500 futures down more than 5% as results rolled in, although they subsequently rebounded. Whereas the market expected gridlock from a Clinton administration and a Republican House, a Republican sweep results in more potential for policy changes. With the lack of clarity surrounding policy details, markets must wrestle with the uncertainty of what a Trump administration will look like. Nevertheless, investors should resist the temptation to overreact to the election. Political developments will be just one factor that drives markets in the coming months and years.
We suspect downside risks are higher under a Trump presidency, but it’s also important to note aspects of Trump’s policies that would be welcomed by markets. Furthermore, checks and balances in the US political system should prevent extreme policies. Specifically, congressional Republicans are not likely to give Trump a blank check. Trump’s candidacy has exposed divisions within the Republican Party. Victory will probably help to smooth over some of the tensions, but Trump is likely to face opposition from his own party on some parts of his agenda.
Download our paper to read more: US Election: What's next for investors?