Your portfolio, in a Trump world

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This article was published 10/11/2016 (3267 days ago), so information in it may no longer be current.

Markets were rebounding Wednesday after suffering dramatic drops in the wake of Donald Trump’s historic presidential victory. That has some investors wondering what a Trump White House could mean for their portfolios.

During his campaign, Trump proposed major policy changes — from overhauling the tax code to repealing the Affordable Care Act (ACA) and renegotiating trade deals — that could have huge implications for businesses and consumers. There could be more market volatility in the near term as investors and economists try to sort through what he might be able to accomplish and how those ideas may affect the economy.

“This is somebody who had never held elective office, so that would create more uncertainty,” says Scott Wren, senior global equity strategist for the Wells Fargo Investment Institute. “Wall Street doesn’t like uncertainty.”

It may be painful to watch the wild swings, which tend to appear after major events such as this. But the average investor saving for retirement should probably avoid making any major changes right now, financial advisers say.

Historically, there’s been no major change between how stock markets perform when a Democrat is president versus when a Republican is in office. A review of the 3,000 largest U.S. stocks by Fidelity Investments found stock markets gained 12.2 per cent on average per year under Democratic presidents compared with 11.8 per cent per year under Republican presidents. That means trying to shape your portfolio based on who is in the Oval Office is probably a losing game for the typical investor, says John Sweeney, executive vice-president of retirement and investing strategies for Fidelity.

It’s still not clear what Trump will be able to accomplish. In reality, he would need to work with Congress before his policies could be implemented, which means they would likely be toned down, says Dana Peterson, a North America economist with Citi Research.

For example, his plan to overhaul the ACA, also called Obamacare, and scale back regulations may be supported by Republican lawmakers, who control both the Senate and the House of Representatives. But some of his other ideas, such as his calls for lower tax rates, may be scaled back by conservative lawmakers worried about controlling the government debt, according to Citi.

Congress would also likely moderate Trump’s plans to rework trade deals with China and Mexico to preserve those relationships and avoid higher tariffs on U.S. imports, Peterson says.

But based on what Trump has said so far, there are certain investments and sectors that could be impacted more than others. Here’s a look at some of the potential effects investors should be aware of:

Health-care stocks

The health-care industry is likely to be disrupted as we learn more about Trump’s plan for reforming the ACA. Trump has said under his plan, no one would be required to have insurance, which could have a mixed effect on insurance companies. It’s too early to know whether these changes will happen or if they would be a net negative or positive for the sector.

Financial firms

Trump has said he supports reinstating the Glass-Steagall Act, which was repealed in 1999 and restricted the growth and risk levels of big banks. If he supports policies that call for breaking up big banks, that could be bad news for major financial firms, but it would offer a bonus to regional banks, says an analysis by the BlackRock Investment Institute.

However, banks could benefit if Trump and some Republicans in Congress are able to undo some of the regulations that have been put in place by the Obama administration. Some lawmakers may try to undo recent rules from the Consumer Financial Protection Bureau that made it easier for consumers to sue financial firms.

Defence stocks

At campaign events and throughout the debates, Trump has talked about bolstering the military, which could be a positive for defence stocks, says Jeff Carbone, managing partner with Cornerstone Financial Partners, an investment management firm. Companies that make weapons, airplanes and other military equipment may see a boost.

Companies that export goods

Trump would need to work with Congress to modify long-standing trade deals. But if he succeeds in revamping some of the agreements, it could spell losses for companies that export heavily to other countries, Peterson says.

Energy companies

Trump is in favour of loosening restrictions on the energy industry. That could bode well for coal and gas companies that rely on fossil fuels, says Wren. Trump is in favour of reduced regulations on drilling, which could give oil companies a slight advantage, he says. In contrast, renewable-energy companies, such as those that centre on solar energy and other environmentally friendly approaches, could be hurt, Wren says.

Bonds

Interest rates have been at rock-bottom levels since the start of the financial crisis, and the uncertainty caused by Trump’s presidential win could lead to an extension of that low-rate period.

It was previously expected that the Federal Reserve would raise interest rates in December, but the timing of that rate hike is now being called into question as economists wait for more clarity on Trump’s economic policies, says Michelle Meyer, head of U.S. economics for Bank of America Merrill Lynch.

However, other factors could push bond yields up or down, regardless of what the Fed does. Trump’s plans to boost infrastructure spending and cut taxes could increase government borrowing, Peterson says. If that leads to the issuance of more government bonds, it could cause bond yields to rise. And as they have in the past, other events — such as when Britain voted to exit the European Union — could send bond yields spiralling back down.

Gold

The shiny metal rallied during times when it appeared the election was swinging in Trump’s favour. The price of gold also spiked early Wednesday when it became clear Trump had won the election, but those gains were pared back as stock markets stabilized. Gold typically gets a boost when stock markets are rocky and investors become worried about volatility. But the metal is also pretty volatile itself, and most advisers say investors who want to invest in gold should probably keep the holdings to a small portion of their overall portfolio.

The confusion over how markets will fare means most investors should probably not try to make big bets on specific companies or sectors, financial advisers say. And people who are investing for the very long term, such as those saving for retirement, should likely stick to their plans, Carbone says. “Once we get beyond the current headlines of the election, the fundamentals should take over, and the market should be able to move forward.”

— Washington Post