We’re getting a new president. The markets are shaky. In this NJMoneyHelp.com special election report, here’s what you need to know for your portfolio.
As investors around the world watched the election results come in, there was panic.
Global stock markets fell dramatically, and U.S. futures followed suit. By morning, the markets had recovered half of massive overnight losses, but still pointed to a significant selloff.
It’s all about uncertainty.
And uncertainty breeds volatility.
“We saw a violent knee-jerk reaction overnight to election results that were a complete surprise and totally against what the financial markets had expected leading up to the election,” said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.
Whatever you think of the campaign promises of Hillary Rodham Clinton and president-elect Donald Trump, the markets found comfort in a Clinton presidency.
Clinton’s economic proposals would not, for the most part, be a huge step away from the current administration’s. Investors viewed her candidacy as more of the same. The status quo.
Trump’s, in comparison, called for explosive change, and that’s what has investors worried.
Among the issues:
Possible trade wars: Trump has promised to renegotiate NAFTA — the North American Free Trade Agreement — between the U.S., Mexico and Canada, and he’s promoted protectionist policies. He’s bashed China, saying he will put large tariffs on Chinese imports. Same goes for products made in Mexico.
No more “safe haven”: Critics say Trump’s tax cut plan will lead to a huge increase in the budget deficit. And while U.S. bonds and the dollar have always been a safe haven in times of uncertainty, global investors weren’t so sure last night, with investors turning to the Japanese yen as the U.S. dollar weakened.
Foreign relations: Trump has intimated that as president, he won’t necessarily support our allies if they haven’t “done their fair share.” So if an ally is threatened and the U.S. doesn’t step in, well, any military conflict shakes the markets.
So how does all this translate to your portfolio?
For starters, if you need cash in the short-term, you should take profits and don’t try to time the market, Lassus said. She said at least in the next few months, the markets will probably remain volatile, so if you need your money to be there, don’t take any chances.
Over the next several months, we’re sure to learn more about Trump’s plans, and that will be a good thing for the markets.
“The initial shock of Trump winning, we feel in the short-term is somewhat similar to Brexit and the reaction the markets had of a decline of approximately -4 percent,” said Gerry Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield. “The relatively quick recovery the U.S. market had with Brexit the first week of July may not be repeated without more clarity of Trump’s policies and appointments to his cabinet.”
Now isn’t the time to panic and flee the stock market with your long-term money. You probably won’t sell in time to avoid significant losses today, and as long as you don’t sell, those losses are only on paper.
Lassus said if you’re a long-term investor, you should continue to think long-term and don’t let the current uncertainty drive you to make decisions you may regret.
“We have been through many different periods and presidents and we have managed to survive them all whether we agree with them or not,” she said. “So take a deep breath and step back from your portfolio for now.”
If you have money to invest today, the uncertainty could work to your advantage.
Lynch said he loves investing new money in a volatile market.
“It is an investment opportunity of a lifetime so take advantage of it,” Lynch said. “Call Trump whatever you like but he is pro-business and a rather successful businessman which should benefit the economy.”
Lassus said if you’ve been investing cash as part of your long-term plan, you should continue to do so, “but consider extending your investment timeline for putting the cash to work to take advantage of the volatility.”
Jim McCarthy, a certified financial planner with Directional Wealth Management in Rockaway, sees areas of opportunity.
“Look for sectors that will benefit from a Trump administration – energy and financials due to less regulation, military suppliers, industrials due to infrastructure spending,” he said. “Avoid sectors that will be negatively impacted – companies that are export driven due to anti-trade talk.”
Papetti said specifically, there could be an opportunity to invest in infrastructure-related companies.
“Trump’s tax plan is quite ambitious and ambiguous, however we think fiscal stimulus is needed to help our economy grow as monetary policy has used all of its bullets,” he said.
Then there’s trade.
Even though our trading partners are terrified by some of the paths Trump could follow, some see the renegotiation of trade deals as a good thing.
Lynch said right now we have around $60 billion more per month in imports than we do exports.
“That is really not good and long-term that will destroy the U.S. economy,” Lynch said. “Trump has been very vocal about how our trade deals have been hurting American jobs and our economy.”
Lynch said he agrees that current trade deals should be renegotiated so they can be a “win-win” for both trading partners, “with the purpose of increasing U.S. jobs and helping the U.S. economy, while helping other countries along the way.”
“The trade deals we have are bad and we all know that,” he said. “Changing them and/or breaking away from them will create short term volatility — I smell investing opportunity — but long term it should benefit the U.S. economy and workforce.”
While we wait to see what happens, overseas markets will continue to be volatile.
Other countries have the same issue America has, Lassus said, “not yet knowing what a Trump presidency will look like and how it will impact relations with other countries.”
She said her concerns are more about a lack of clear policies from Trump, rather than concern about his actual plans.
“We really have to wait for policies to evolve to judge the impact for the longer term,” Lassus said. “Hopefully we will begin to see them rolled out relatively quickly.”
Lynch said it’s time to relax and take a deep breath.
“It is not about timing the market, it is about time in the market,” he said. “Remain consistent and you will get consistent results. Knee-jerk reactions generally result in really bad results. Never make emotional investment decisions.”
Papetti reminded us that Sir John Templeton once said the four most dangerous words in investing are “This time it’s different.”
“We shall see,” he said. “With a Republican president and Republican Congress, it’s time to walk the walk.”
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