Given that the outcome of the U.S. election on November 8 was rather surprising, here are a few immediate comments on it.
The probability that Mr. Trump would win was about 35%.
He had to take most of the undecided states (and their Electoral College votes), and that is what happened. His victory was therefore improbable but far from impossible. As with Brexit, the polls underestimated the people’s discontent.
The other important aspect of the election is the fact that the Republicans kept their majorities in the Senate and the House of Representatives. The U.S. political system ensures that the President does not have free rein because Congress (the House of Representatives and the Senate) must approve the changes and actions he proposes.
Even though Mr. Trump is officially Republican, many of his policies and views place him much more in the centre of the political spectrum, and many Republican leaders have publicly dissociated themselves from him, including Paul Ryan, the “number one” Republican. It is therefore uncertain whether he will be able to bring about all the changes he has discussed.
It will take some time to get a clear idea of the election’s impact on the U.S. and global economies. On the stock markets, however, we have to expect short-term volatility as a result of the considerable uncertainty.
Unfortunately, for the time being we can only speculate. Mr. Trump has announced that he wants to launch a massive economic stimulus program, including infrastructure investments, which is inherently positive. Even so, the greatest unknown is the level of protectionism that will emerge (such as renegotiation of the North American Free Trade Agreement, the Trans-Pacific Partnership Agreement, and relations with China concerning tariff barriers) as well as the impact that it could have on economic growth and inflation. The protectionism announced by Mr. Trump is contrary to the traditional Republican platform because it is potentially detrimental to U.S. multinationals.
In conclusion, as it became probable that Mr. Trump would win, the international markets turned very negative, as did U.S. equity futures. Even so, the situation has partially reversed itself, and we have had a positive day on the North American markets. Mr. Trump’s rather unifying victory speech seems to have been a factor.
We shall continue to monitor the situation closely to keep you informed of potential impacts.
This review has been prepared for the general information of our clients and does not constitute an offer or solicitation to buy or sell any securities, products or services and should not be construed as specific investment advice. All opinions and estimates expressed in this document are as of the time of its publication and are subject to change. The information contained in this document has been obtained from sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. The content of this presentation is proprietary and should not be further distributed without prior consent of Gestion FÉRIQUE.