Unless you’ve been living on Planet Zog for the past 12 months (and to that, some may say, “lucky you!”) then you’ll have noticed the election of Donald Trump has caused an emotive and dramatic response around the world – and in all walks of life.
The financial markets are no different. So if you’re an investor, what does that mean for you? How do we ponder our finances in a Trump-led western economy? And, given the mass-hatred Donald has infused in so many of us, should we feel guilty about making money off his pro-business capitalist ideals? Hmmm. Now there’s a conundrum.
Here are my views on how the stock markets have reacted to Trump policy so far and how they may evolve in the months and years ahead. And a few thoughts on the g-word.
Trump wins! Wall Street’s initial scare
Hillary Clinton was long perceived as the frontrunner throughout the presidential race. On Wall Street, she was widely seen as the preferred candidate, and whenever she pulled ahead in the polls, the market reacted positively. So it was no big surprise that when the official results were in and Trump was declared the winner, Wall Street panicked, and the top indices crashed.
However, it was short lived, and once the markets settled, the negative trend reversed pretty quickly – screens turned green, the US Dollar started climbing and the US markets in particular were soon hitting record new heights on a daily basis. A fresh period had begun. Business confidence and investor optimism was sky high.
In hindsight, that’s not so much of a surprise. Let’s not forget that Trump was considered a very successful businessman for decades. The upward trend that has been sweeping Wall Street could be attributed to the traditional republican perception of keeping the government small, with little interference in the economy, which Trump will most-likely uphold. Trump has also made very strong promises that could boost the American economy – and his background in business might have given more validity to these claims once he got elected.
So far, the market is booming. Leading stock markets continue to show steady gains and the Dow is showboating above 20,000 points for the first time in its colourful history.
Where next? International relations
We are all looking for signs as to where the Trump effect will be felt the most and his outspoken views on US relations with other nations is a great starting point.
The economy in Mexico – America’s closest neighbour to the south – has already taken a big blow and could be set for further disruption in the future. Every time Trump strengthened in the polls before the elections, the peso would lose value against the dollar. It’s dropped even more since Trump won. In the last two months Trump has been consistently taking jabs at companies who have a presence in Mexico, further dampening investor appetite for the region, and there are no signs that Trump will let up any time soon in his unwavering, singular approach.
The relationship between the US and China is a bit more complex. It’s also arguably more important because, given their combined stature, any changes here will undoubtedly impact every financial market around the world. An announcement from Trump and Alibaba’s Jack Ma, which stated they will work to increase the Chinese eCommerce giant’s presence in the US, supposedly creating one million new jobs in the process, is a strong indication of Trump’s commercial desires above all else.
The tweet that moves markets
If you’re an investor or trader of any level of experience, it can help – I’m sorry to say – to follow Trump on Twitter. Generally, social media has been Trump’s weapon of choice in conveying his robust policy ambitions and he has often been able to influence the economy with 140 characters or less.
When Toyota said it would build a Corolla factory in Mexico, Trump took to Twitter saying he would impose specific taxes on the car makers if it tried to export cars to the US from Mexico. Whenever Trump tweeted his opinion, or intended actions, regarding a car maker’s intention to manufacture in Mexico, that company’s stock would go down.
Another example is Trump’s criticism of Lockheed Martin’s F-35 jet, calling it overpriced and saying he had asked Boeing to manufacture a rival plane. That tweet sent Lockheed’s stock price crashing, shedding 2%, and caused Boeing shares to rise 1%.
The Trump era has begun – but where will it end?
The effects of Trumponomics are already very present in the market and are here to stay – for at least four years. The American economy is already adjusting to the new reality and major financial bodies are already making adjustments. The Federal Reserve, for example, has raised rates in December, and will probably raise them at least once more this year.
Traders who want to benefit from Trump’s presidency should pay close attention to his announcements regarding the US market in particular, his reforms and planned courses of action. These are the areas that are likely to cause big waves in financial markets and create opportunities for investors.
With the Brexit vote putting a lot of pressure on the European and British economies, Wall Street and the US appear to have a more stable foundation in the coming years, which should also present some interesting opportunities for investors, both in the short and long term.
Spread it around
Personally, I always favour a very VERY diverse approach to investing, as anyone who reads my blog will know and understand. By that I mean that I’m not in the habit of picking out individual company stocks or singular opportunities as such. That’s a very risky way to invest your money in my view. It’s a fool’s game. But, with Trump’s influence on the world being as great as it is there will undoubtedly be many enormous changes – and therefore opportunities – in financial markets. US big company stocks, more broadly, look like a good investment for the next 5 years.
I’ll also be looking for ways in which US economic improvements may provide good news for emerging markets, where stocks are relatively cheap in some quarters and where US boosts could reverberate quite quickly, and how US trade relations with Japan and the UK could give a healthy kick to global businesses based in those countries – again, a positive sign for many large-cap stocks in western economies.
Investing with a conscience
I mentioned the G word at the start of this post too – GUILT.
I intensely dislike Trump and his approach to life. I don’t agree with it at all. I know some that do, but not many. The vast majority of people I converse with in life are vibrant opponents of the Trump philosophy. So a challenge has been put to me many times in recent months – how could I look for stock market opportunities that might give me financial gain and cause others pain, all as a result of Trump’s dramatic manoeuvres and often scandalous new policies?
Firstly, I can’t control it. I don’t even have a vote in the US. So his existence and role in the world is far, far beyond my powers, no matter how repulsive I find it. Secondly, I don’t believe in 98% of our current world leaders and their beliefs. Jeez, I wish I could pull the strings there, but it just ain’t going to happen. So regardless of who’s in charge and who’s saying what, I’ll always think they’re a tidal wave of dough-ball lunatics and I’m going to take them for as much as I can, quite frankly – as little as that may be in the grand scheme of things.
My hope of all hopes is that the Trump era is short-lived and relatively painless. But that doesn’t mean we shouldn’t continue to look after ourselves and our families and provide a good, healthy, responsible and ethical environment for them and those we love, as best we can, for as long we can.