As the world watched with bated breath on the outcome of the US election, global markets were already on the move.
An upward move.
- The S&P 500 Index closed 2.5% higher.
- NASDAQ Composite moved up approximately by 3%.
- Small-cap Russell 2000 Index closed 5.8% higher.
- ASX 200 rose 0.8%
The US dollar also gained value compared to other developed countries’ currencies.
Why such an immediate turn in the market in response to Trump taking the Presidency?
The instant upturn in the market is driven by the belief that the Republicans will take actions that are supportive of corporate earnings and stock price appreciation.
For example:
- extending corporate tax cuts set to expire
- decreased regulations leading to cheaper expansion
- elevated merger and acquisition activity, and
- a general business-friendly mindset.
All activities that drive the market forward.
How will individual sectors in the US benefit?
- Financials, especially banks, will benefit from decreased regulatory restrictions and a steeper yield curve making lending more profitable.
- Energy companies look forward to less regulation and looser restrictions on drilling and exploration.
- Highly profitable tech companies will benefit from no increases in corporate tax rates.
- U.S. small-caps will benefit from decreased regulation and increased merger and acquisition activity.
- Growth companies will benefit from Trump’s business mindset, his focus on growth and lower corporate tax rates.
What lies ahead?
The sharp uptake of global markets has even surprised those expecting a Trump victory.
Making any market decisions based on an election is a risky move. Time will tell if the upturn in global markets is here to stay.
Likely, as history tells us, the uptake will be a mere phase in the cycle and it will reset to investors looking at conventional factors to drive their investment decisions – not to who is sitting in the White House.
Time will tell!
In events such as these, it is important to have an active portfolio to benefit and/or protect oneself from immediate turbulence. If you would like to discuss this further please contact our office to take steps to improve your financial position.
