Skipton Financial Services
Wednesday, November 9, 2016 - 16:42

What does Trump’s victory mean for markets?

Donald Trump has achieved one of the most improbable triumphs in modern US political history after being elected as president – prompting uncertainty over what this means for the economy and stock markets

But amid the media coverage, it’s important to remain calm, not be too unduly concerned over the short-term, and focus on the long-term picture.

The initial reaction to stock markets

During the tallying of election votes overnight, Asian and emerging markets – such as Japan – saw falls as the outcome became clear, while the Mexican currency (Peso) tumbled to an all-time low.

But by Wednesday morning the UK FTSETM certainly remained relatively quiet. And despite the initial response from stock markets, these tremors were no more than what experts had anticipated in the event of a Trump victory. In fact, European indices fell considerably less when compared to the immediate aftermath of Brexit result.

We spoke to David Jane, Fund Manager at Miton, to gain his thoughts on the impact of the election on financial markets:

“Donald Trump, and the Republicans controlling both the House and Senate, is the result that markets least expected.

“However, initial negative reaction in financial markets is being quickly unwound as they realise the longer-term implications. While many Asian markets knee-jerked a long way lower in the shock of the moment – as many people have come to considered assessments – the reaction seems more rational.”

What happens next?

It’s anticipated that most of the economic impact will be felt in the US and emerging markets – such as Mexico – due to these countries being linked to the US economy and US dollar.

But comparing the election to the initial shock of the Brexit vote: although the value of Sterling has been affected, stock markets have recovered and Britain has largely reacted to the result with resilience.  So there’s no reason why the US can’t react in the same way. 

Scott Ashworth, Senior Technical Research Adviser at Skipton Building Society, stated:

“Whatever people think of Trump or his policies, there are some that may have stimulating effects on the US economy, such as the cutting of taxes and government spending”.

Ashworth added that the likelihood of a US interest rate rise is less certain: “The Federal Reserve meet in December, which was originally painted as the session for a potential increase to interest rates. Due to this result, the central bank may not have more to consider before taking that action.”

Despite the uncertainty, it’s important to understand that the change of president may not be as dramatic as many might think. Trump won’t officially take office until early next year – which is still a reasonable amount of time for more clarity to appear over what policies he’ll actually enact, and what type of people he wants to elect as part of his staff.

Whilst markets rise and fall it’s their long-term record that really matters. As an investor, you shouldn’t let the uncertain short-term financial markets affect your long-term financial planning.

Naturally if you have any queries or concerns about your investments, we’re here to help you.

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