Love him or hate him, Donald Trump has been elected as the next President of the United States of America. This surprising outcome contradicts the pre-election polling results which showed Hillary Clinton as the favourite. This is the second high-profile failure of polling firms this year, given the Brexit surprise back in June, and brings into question the legitimacy of such “research”.
The American electoral system is different from the Canadian system and is subject to a much more pronounced voter allegiance to one of the two major political parties. Electoral votes are awarded per State based on proportionate size of the population. Traditionally, the Democrats have success in the northeast and west coast, while the Republicans show strength in the south and midwest. This leaves a number of “swing” states that are very influential in determining the outcome of the election, and these states include Florida, Pennsylvania, Ohio, Michigan and North Carolina.
It did not take long for markets to react as incoming election results began to show that Trump was experiencing some success in early results, including the state of Florida. Overseas markets in Asia and Europe began to sell off and U.S. stock market futures also dropped. As the election results continued to suggest the strong possibility of a Trump victory, the trend worsened with the Dow Jones Futures Index down over 800 points at one point.
Typically, republicans tend to represent pro-business policies which should be positive for the equity markets. And of all possible candidates, nobody would be expected to exemplify those policies more than Donald Trump. What has spooked the markets is the unpredictable, and at times contradictory, nature of comments made by Trump on the campaign trail. Markets don’t like uncertainty, and many people are not convinced that the American political system will function calmly and orderly when the leadership changes hands.
With the news of the election results now settling in, market movements have moderated somewhat. With less than an hour to go to the opening of North American markets, the futures are indicating a decline of about 1.5% in the U.S., U.S. government bond yields are now slightly higher, and the U.S. dollar is weaker against the major currencies, but stronger vs. the Mexican peso and Canadian dollar.
Without a doubt, we expect to see some volatile movements over the next few days, but like any major event that impacts markets, it is impossible to accurately predict the outcome in the short term and to attempt to profit by “guessing” in the markets would be careless. Regardless of the length and magnitude of market movements in either direction over the short term, the impact will be overwhelmed by the more stable path of the long term and this will be considered nothing more than a blip.
If you have any questions or concerns, we would be happy to speak with you or respond to your emails.
Written by James Gauthier, Chief Investment Officer at Justwealth