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Market Thoughts

Americans Vote for Change

U.S. voters sent a strong message yesterday when they elected Donald Trump as the country’s next president. This election season concludes with the Republicans winning the presidency and holding on to majorities in both the House of Representatives and Senate. This Market Thoughts explores the immediate impact of the Trump surprise and offers some initial thoughts on the likely market reaction.

Heading into Election Day, pundits expected a close race, but most polls suggested a Clinton win and a slight Democratic pickup in the Senate. As results rolled in, it became increasingly apparent that Trump outperformed pollsters’ expectations, winning in key states, including Florida, North Carolina, Ohio, and Pennsylvania. In the end, he rolled to a win over Hillary Clinton with a solid Electoral College margin despite a close popular vote.

The stock and bond markets dislike uncertainty, and last night’s election results surprised traders as Clinton (the predicted winner) did not win, and Trump (an unknown quantity as a politician) did. When the hint of a Trump win turned into a clear-cut victory, traders caught off-guard by the outcome headed for the safety of the sidelines.

U.S. stock futures, currencies, oil, interest rates, and precious metals prices all reacted. At one point, Dow Jones Industrial Average futures fell as much as 800 points and oil slumped 3 percent. Meanwhile, safe haven U.S. Treasurys and gold prices rose sharply. As of this writing mid-afternoon on November 9, U.S. stocks have recovered from their losses and are positive for the day.

The initial market reaction has been dramatic, but it is too soon to know what a Trump presidency will mean for the U.S. and global economies or the capital markets. During the campaign, he outlined a variety of policy changes, including repeal of the Affordable Care Act, corporate and income tax code changes, and spending on infrastructure, defense, and education. If enacted, these policies could be positive for stocks and the economy and offset potentially negative consequences of other policies such as trade.

Given that the inauguration is more than two months away, practical details will take time to unfold. While we expect more volatility as investors digest the news, we do not recommend raising cash or moving to the sidelines. We are long-term investors, and we believe that short-term market fluctuations often present opportunities. As always, a sound asset allocation strategy tailored to your specific needs and a long-term view can help insulate your portfolio from market gyrations and provide confidence to stick with your investment strategy.

We will be following developments closely and keep you up to date. If you have questions or concerns please do not hesitate to bring them to our attention.