Trump’s win leaves region’s investors with concerns, opportunities
Increased spending expected on infrastructure and tax cuts are expected from the new administration
Area investors may see a rocky road in the days to come as the nation adjusts to a Donald Trump presidency but markets will adjust as they always do to the new reality, several investment advisors said on Wednesday.
“In election years, market volatility is 30 to 40 percent higher than in other years,” noted Roger Aliaga-Diaz, Chief Economist for the Americas for the Vanguard Group based in Tredyffrin. “In the beginning there’s a shakeout ... Sooner or later the markets always go back to fundamentals.”
The immediate reaction as it became apparent Trump was going to be victorious Tuesday evening was not encouraging as the markets gyrated back and forth. By Wednesday afternoon, however, the Dow Jones Industrials closed up 257 points, or 1.4 percent.
“Basically, stay focused and above all don’t make drastic changes to your portfolio” should markets start violently fluctuating again, Aliaga-Diaz advised in a webcast on the mutual fund giant’s website.
While agreeing caution is called for, John Garvey, a financial advisor with UBS in Philadelphia, said investors may need to adjust their portfolios as a result of Trump’s election.
“Investors should be focused on their financial plan and not let the election dictate what they do,” Garvey said. “There’s a bias with an election coming up that, ‘I have to do something.’”
Many pulled out of the stock market as the election approached despite being advised not to, Garvey noted.
“Actually, now is the right time to address (investments) through active portfolio management,” Garvey said. “We had a plan for this.”
The company had different scenarios for clients depending on the outcome of the election. The final results, with Republicans taking the White House and maintaining control of both the House and Senate, had only a 15 percent probability of happening in early October.
“There is going to be opportunities and some things that are going to be negatively impacted,” Garvey said.
UBS sees opportunities in health care, defense and pharmaceuticals while Trump’s stance on trade brings into play the possibility of protectionism policies. Garvey and Aliaga-Diaz both predicted infrastructure spending would rise and tax reform would pass, especially corporate tax reform.
Still, “there’s not enough information yet to make wholesale changes,” Garvey said. “As the days and weeks and months pass, we think there’s opportunity.”
Here’s a look from the Associated Press at what national experts say to expect:
WHAT’S GOING TO HAPPEN TO THE MARKET?
The answer is that no one knows. Not even the market knows. Late Tuesday, the futures market — where investors place bets on where stock indexes will end up — was calling for a drop of at least 5 percent for the widely followed Standard & Poor’s 500 index. By midday Wednesday, the S&P 500 was up, 0.6 percent.
History has shown that a presidential election doesn’t singlehandedly alter the stock market over the long term. Other factors, such as how expensive stocks are relative to their earnings and what the Federal Reserve is doing with interest rates, are more important factors than who sits in the White House.
Annual stock returns going back to 1853 have been virtually identical, regardless of which party sits in the Oval Office, at roughly 11 percent, according to the investment strategy group at Vanguard. The U.S. president may be the leader of the free world, but even that much power doesn’t allow for singlehanded control of the economy or interest rates.
WHY SO MUCH CONCERN ABOUT A TRUMP PRESIDENCY?
Because no one knows what kinds of policies a President Trump would enact. One worry is that his election could lead to a global trade war, which would drag down profits for big U.S. companies that increasingly depend on customers in China, Europe and elsewhere.
He also represents uncertainty, one of the biggest bugaboos for markets.
ARE OTHER PEOPLE FREAKING OUT?
More customers than usual at Fidelity are calling in to ask what they should do, but only a few more. The call volume is about the same as a typical Tuesday after a three-day weekend, Fidelity says. One measure of investor fear — an index that measures how much traders are paying to buy insurance against future drops in the S&P 500 — actually dropped 15.5 percent Wednesday.
WHAT SHOULD I DO WITH MY 401(K)?
Try to do nothing, even if the market starts to swing sharply, experts say.
Stocks are long-term investments, meant to be held for many years. Big swings in the interim
are normal and should be expected. That higher volatility is the price that investors pay in exchange for the higher returns that stocks have historically provided over bonds and other investments.
If you’re feeling nervous, maybe the underlying problem is that your portfolio has too much in stocks, says John Sweeney, executive vice president of retirement and investing strategies for Fidelity. If you haven’t checked your 401(k) much the past few years, you likely have more in stock than you used to. The largest stock mutual fund has returned 183 percent since the start of 2009, for example, far outpacing the 37 percent return for the largest bond fund. So, unless you’ve been rebalancing your portfolio regularly, you may have a much bigger percentage apportioned to stocks than before. And as investors get closer to retirement age, experts suggest paring back on stocks and devoting more of their portfolios to bonds.
“If this news event has caused you some anxiety,” Sweeney says, “use this as an opportunity to rebalance.”
President-elect Donald Trump and campaign manager Kellyanne Conway celebrate during an election night rally Wednesday in New York.
President-elect Donald Trump pumps his fist during an election night rally Wednesday in New York.