US Presidential Election - A New Era Dawns

09 November 2016

A new era has dawned this morning for US politics but what does it all mean for financial markets? This result was not expected by the markets and so has come as something of a shock (as Brexit did). As a result, uncertainty has risen and may be elevated, perhaps for some weeks. This is driven by the fact that Donald Trump is an unknown quantity. Investors will be mindful that he has promised radical change, has attracted plenty of sensationalist negative media coverage and is untested in public office.

Despite the shock result, investors are not in panic mode this morning. Beyond an initial knee-jerk reaction, markets have quickly moved to regain their poise. But uncertainty remains elevated and may present something of a drag on US equity markets, and perhaps global risk assets, through the rest of the year. Crucially though, this result does not alter the medium-term trajectory for the US economy which fundamentally drives these markets. There are plenty of checks and balances in the US legislative process that should ensure that the more sensational aspects of Trump’s pre-election rhetoric, will not become part of US policy. There is a huge difference between pre-election rhetoric and carefully thought out, supported, Republican Party policy.