U.S. Elections 2016
Barings’ investment professionals provide insights on how the U.S. presidential election may impact the fixed income, equities, alternatives and real estate markets.
While the media and political junkies have seemingly focused on each and every post-convention poll to decipher clues to the eventual winner of the U.S. presidential contest, one of the most accurate predictors of election results has been the performance of the S&P 500 in the three-month period leading up to the election. Since 1928, the S&P 500 has predicted 20 of the last 23 presidential winners and every election since 1984. The simple formula is if stocks are higher, the incumbent party wins. The uncanny accuracy (87%) of this relationship may not be far-fetched if it is viewed through the lens of social mood. The stock market’s performance in the months leading up to the election reflects the collective view of the economic outlook. A declining stock market (negative economic outlook) may express a desire for change.
Trump’s victory was certainly a surprise to markets, however, like Brexit, very little is known about the longer-term impacts of Trump's victory. Like all government transitions, the policies of the new administration will take time to materialize and the resulting impact on financial markets and the economy will likely ebb and flow over the next four years.
While we do know that President-elect Trump has a mandate for change, it remains to be seen how effective he will be in governing and implementing his proposed policies.
In his acceptance speech, President-elect Trump struck a conciliatory tone. Often, the rhetoric of a hard-fought political battle is not the best indicator of the course of the presidency. At the end of the day, events happen, decisions are made and political inertia can undermine even the most passionate campaign promises.
That said, political uncertainty, especially here in the U.S., has been one of our key macro themes. While plenty remains unsettled after the election, like Cabinet composition and other key appointed positions, tax cuts, fair trade policy and a more business-friendly environment could lead to greater pro-growth sentiment. However, it is still unclear as to how much the U.S. will look to reassert itself as a leader in global affairs. That said, a Trump administration would have the potential to disrupt the Washington D.C. establishment scene and provide a different path forward for the public-private partnership dynamic.
If major policy reform is unattainable, Trump could unilaterally exert the most influence on trade policy through use of the President’s executive authority which would not require Congressional approval. While there has been much discussion recently about the limits of monetary policy and a passing of the baton to fiscal policy, we will be closely watching fiscal spending proposals for the impact on the deficit and what the resulting implications are for the U.S. dollar and interest rates. At present, corporate fundamentals appear stable but a change in administration and policy will likely produce some volatility and provide new opportunities for investors across multiple asset classes.
While there are many policy initiatives, we will focus on a few that we believe will be most impactful to markets and economic growth:
We anticipate that high yield issuers will largely weather any short-term volatility ...Read More
Trump's victory to have a profound effect on global markets ...Read More
We believe the environment remains a healthy one for emerging markets and we continue to see ...Read More
The U.S. economy remains in reasonably healthy condition and corporate earnings are fairly robust ...Read More
We don't expect any one political event, such as the U.S. Election or Brexit, to impact our portfolio ...Read More
At the end of the day, the fundamentals underlying the U.S. real estate market are sound ...Read More
The investment case for strong companies is not dependent on the president ...Read More
Infrastructure spending in the U.S. was one of the issues that both major parties actually agreed upon...Read More
Fundamentals are solid & the direct impact of the election are somewhat limitedRead More
Our focus remains on the fundamentals, following a Trump win ...Read More
Uncertainty is the big takeaway from Trump's win ...Read More
Despite a change of U.S. leadership our outlook for Asia remains strong ...Read More
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