Election day is over, and the world after waiting with bated breath is starting to exhale. One of the biggest questions on everyone’s mind right now is what’s going to happen to the stock market and economy when Donald Trump is president?
The short and honest answer is “who knows?” The longer answer requires some evaluation.
When the odds began to shift on election night towards a Trump victory, stock futures pointed down, yet the actual market reaction the next day was positive. Investors are beginning to weigh what a Trump presidency might mean for stocks and the economy.
However, not all stocks went up. There could actually be some clear winners and losers in different sectors of the economy as the policies of the Trump administration gain clarity.
Let’s be clear though: the real winner is Alec Baldwin.
So what should we focus on moving forward?
Investors shouldn’t panic
Panic isn’t a strategy. Investors should aim to position themselves so when unexpected events occur, they are still comfortable with their investment strategy. That means positioning for the appropriate amount of risk in advance.
So many things – a Trump presidency, a geopolitical event, bad corporate earnings – can cause markets to drop. The next time stocks drop 10%, I suggest you take a look at your portfolio to see what kind of risk you can stomach. These types of corrections occur all the time.
The key is to take a look at the types of risks in your portfolio and discuss them with your financial advisor. Then figure out how to adjust your portfolio accordingly to take calculated risks, formulate a plan, and stick to it.
Unpredictability will drive market volatility
One big challenges right now is a lack of clarity regarding the policies a Trump administration will pursue. Imagine you are an executive offering quarterly guidance on your company’s growth prospects. How can you do this if you don’t know whether a trade pact will be torn up?
As we said in one our earlier posts (“Who is better for the stock market, Trump or Clinton?”), markets don’t like surprises. Who knows whether Trump’s policies will be good in the long-run, but the market may be in for a bumpy ride as unexpected events develop.
A few weeks ago, I also had the opportunity to CNBC and share my thoughts of what this unpredictability means for the markets. Some of the key points we discussed are:
- Corporate guidance is going to be a challenge and CEOs may hedge their bets.
- The dollar is going to fluctuate which will impact both domestic and foreign markets.
- Not everything Trump said on the campaign trail is going to get a green light from Congress.
The bottom line is that broad diversification is still important.
For more on this, watch the video from appearance on CNBC.
You might also like: Quarterly Questions to Ask Your Financial Advisor
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