In the run-up to the US presidential elections, the media was fervently anti-Trump. We saw network after network lambasting Trump as a bigot, racist, sexist, unsavoury individual and corrupt businessman. Trump was effectively disowned by a large section of the GOP caucus, left high and dry without the endorsement of key political figures in Paul Ryan, Mitt Romney, Mitch McConnell and others. Wall Street bigwigs by and large refused to fund the Trump campaign, instead preferring to lend their support to Hillary.
Trump’s campaign manager, Kellyanne Conway – a masterful pollster and strategist – stuck to her proverbial guns and drove her mark over the line. The net effect of Trump’s outsider status, and strong message brought it home for the Republicans. His crowds were energized, his words were inspirational and his go-it alone approach amid a sea of criticism appealed to the underdog. Trump neither had the backing of the mainstream media, the pundits, the pollsters, the market or the international contingent. True, he is a bold, daring, flamboyant and boorish character but he has a steel spine and plenty of American pride.
This begs the question: How will the global economy react to President-elect Donald J. Trump?
As the final votes were coming in, sentiment started shifting towards a strong bull run on equities markets. There is tremendous enthusiasm on Wall Street that Trump could well drive US economic growth in a big way. His plans for rebuilding American infrastructure (roads, highways, tunnels, hospitals, schools etcetera) will generate trillions of dollars’ worth of fiscal stimulus for the economy. This will require massive employment, especially when coal and steel industries are put to work. Trump’s economic advisors understand that synergy will propel the US to prosperity and it begins at grassroots level. Clinton and Trump were shrouded in scandal, and unsavoury behaviour but Trump’s outsider status won him the vote. Now, the real job begins.
What should Canadian investors expect from the Trump effect?
That Trump was able to break through critical rustbelt states that were traditional Democratic strongholds is remarkable. It goes to the heart of the movement that Trump has championed. Ohio, Pennsylvania, Michigan, Wisconsin, West Virginia, Iowa, Nebraska and other states either voted overwhelmingly in favour of Trump, or narrowly elected Clinton. The message is clear: the people want change and Trump is the champion of that change. The economic impact of Tornado Trump will be interesting. It is already evident that the pundits were wrong about Trump’s chances of winning and they were wrong about the market reaction to his victory.
This begs the question: Are we seeing a Brexit-style change taking place in North America?
In Canada, Stephen Harper won the Conservative ticket while Obama took the United States in the other direction. Now, conservatives hold the reins in the United Kingdom with Prime Minister Theresa May and the Brexit vote, and conservatives hold the Oval Office, the Senate and The House in the US. This is a movement and not an anomaly. Trump has come to drain the swamp of Washington insiders, pay to play politics, and he will be held to an extremely high standard.
Among the stocks that rose after Trump’s selection were biotechnology stocks, healthcare stocks, banking and financial stocks and others. The Clinton campaign promised increased scrutiny of the financial sector, but that appears to have dissipated with the President-elect. There is reason to celebrate with the fiscal expenditure programs that Trump will implement as president. This is a remarkable appreciation given the result. The impact of a stronger greenback against the Canadian dollar naturally lends itself to more expensive imports from Canada. Companies will be borrowing more to pay for their imports, but exports will surge. The US dollar index rose unexpectedly after Trump’s trouncing of Clinton, and more gains are likely to take place moving forward.
Trump’s performance as president will be evident in the financial markets
Analysts were overly negative on the Trump Effect on markets. Wall Street has endured multiple years of bullish sentiment, and there were echoes of bearish trends taking root soon after Trump was elected. The knee-jerk selloff to Trump’s election was countered by a strong turnaround. The S&P 500 index, the Dow Jones, the NASDAQ composite index and the New York Stock Exchange all rallied the day after.
Financial companies desperately need regulatory reforms to be able to function fluidly. American enterprise is hampered by regulatory constraints that prevent effective management, maximum employment possibilities and more. It is too early to tell how financial markets will react when President Obama officially hands over the reins to the newly elected Donald Trump. The office of President of the United States comes with tremendous responsibility. Trump will have to fill that role and lead like an executive to garner the support of the public and the world community. If he performs, he will be judged by the numbers in the financial markets.