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‘Trump has pulled off his ‘Brexit plus plus plus’

Many thought Hillary Clinton had an easier path to the White House – but as ‘purple’ states turned red overnight, it was clear that the US electorate had coalesced behind the anti-establishment candidate.

In one of the most divisive campaigns of all time, the first task of Trump will be to try to heal rifts and become the “President for all the people” as he promised in his acceptance speech.

The Markets

EQUITY MARKETS

The markets initially sold off, but have steadied. The experience of Brexit may have tempered the reaction. Markets were in shock after Brexit – and initial sell-offs were followed by strong rallies over the summer.

Not only was Trump elected to the White House, but also the Senate and House of Representatives are majority Republican. This means that it will be easier to pass some of Trump’s policies, such as increased infrastructure spending. We have seen a strong bounce today in some UK companies that might stand to benefit, with Hill and Smith PLC  for example  trading up over 8%.

Pharmaceutical companies are strong after Hillary’s defeat, as investors had feared harsher control on drug pricing.

However, banking stocks are weaker. This may be given that Trump campaigned on an anti-Wall Street stance, but we think the most likely reason is speculation that interest rate rises are off the table in the short term, and these would be helpful for banking profit margins

Interest rates

Janet Yellen, chair of the Federal Reserve, had previously signalled she would resign in the event of a Trump victory. This will cause some uncertainty in markets, so we can expect volatility around this, though this will of course depend on the timing of her departure, the choice of replacement and, more widely, how effective Trump’s Treasury Secretary and other advisers are seen by investors.

Interest rates are likely to remain low, however it is noticeable that there has been a steepening of the yield curve (longer-dated bond yields rising more than short-dated yields). If Trump embarks on a significant infrastructure programme, which we believe will have the blessing of fellow Republicans now in a majority in both the House of Representatives and the Senate, which must approve spending plans,  then there will be more long-term debt issued. This extra supply could dampen prices, pushing up yields.

Portfolios

It is too soon to tell the shape and colour of Trump’s presidency. However, we still believe, as we did after Brexit, that investors are best placed remaining fully invested. There is uncertainty, but the US economy is still fairly strong and some of Trump’s policies will have the potential to boost growth:

  • Tax reform and infrastructure spending both enjoy bipartisan support
  • Companies may be forced to repatriate offshore corporate cash, which would affect companies such as Apple who have huge cash piles overseas; in the shorter term this may encourage acquisitions overseas, but limit that propensity in the longer term
  • Lower personal taxation may boost spending
  • Trump policies also target energy independence, both ‘green’ and traditional shale and coal
  • We anticipate that Trump’s policies on limiting free trade with higher tariffs may affect some overseas export-oriented companies; however, the ramifications of this will take a long time to appear

We have well-diversified portfolios containing holdings that themselves have broad regional and sectoral exposure. This includes well-established global consumer brands used by billions of consumers every day with very long track records of paying dividends and attractive yields.

We will always look for good quality companies with strong management. We invest in companies that will continue to trade despite of, and not because of, politics. Demographic shifts, a rising East, super-advances in technology and healthcare – these trends can all be tapped in our markets and we remain alive to these opportunities.

IMPORTANT INFORMATION

Issued by Adam & Company Investment Management Limited (Adam), which is authorised and regulated by the Financial Conduct Authority. Adam is registered in Scotland number SC102144. Financial Services Firm Reference Number 141831. Registered Office: 25 St Andrew Square, Edinburgh EH2 1AF.

The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance should not be taken as a guide to future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down.

The information on this webpage is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. The information is believed to be correct but cannot be guaranteed.

Any opinion or forecast constitutes our judgement as at the date of issue and is subject to change without notice. Nothing in this material constitutes investment, legal, credit, accounting or tax advice, or a representation that any investment or strategy is suitable for or appropriate to your individual circumstances. The analysis contained within this webpage has been procured, and may have been acted upon, by Adam and connected companies for their own purposes, and the results are being made available to you on this understanding. To the extent permitted by law and without being inconsistent with any applicable regulation, neither Adam nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such analysis.

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