Now that Trump will be the next U.S President, how should I invest?
I think most agree that the election result was indeed a surprise, but now that the anticipation is over investors can look ahead to see what the future may bring. While I won’t attempt to dissect Donald Trump’s personality or provide an opinion on whether he will do a good job as president, I can offer some insight to how some of his proposed policies may impact investors.
One key point is that with the uncertainty of the election behind us, markets can now focus on the future. This means that investors who have been waiting on the sidelines may get their funds invested again. In short, this could prompt a rally in the markets as investors are worried about missing out on potential gains. The focus has turned back to the US economy, instead of the debates and pre-election rhetoric.
With this in mind, Trump’s suggested policies will likely benefit some sectors of the markets more than others. Here are a few considerations.
The financial sector in the United States may benefit from a Trump presidency. Trump has suggested that there will be fewer regulations imposed on the banks. Furthermore, additional growth in the US economy should lead to higher interest rates, which generally helps the margins and profits of the financial sector.
The heath care sector may also benefit. Hillary Clinton was expected to make broad changes to health care regulation which had put the group under selling pressure prior to the election. With a Trump presidency, health care stocks rallied because we likely expect reduced regulations. That said it’s very early to be able to predict this accurately and it will remain a hot topic for a long time. Keep in mind not all companies in the health care sector will benefit from a Trump presidency; as such investors should watch the sector and pick their investments carefully.
Energy stocks could be a big winner. Trump has indicated that projects such as the Keystone XL pipeline will be a priority. As such, he has indicated the energy sector may enter a period of expansion and growth. While any change in share prices will continue to be dictated by the ever changing price of oil, a more business friendly environment for energy companies could be just around the corner.
It is expected there could be more fiscal stimulus injected in the US economy through defence and infrastructure spending. While these projects may take years to develop, you may want to understand which companies could benefit from this spending and invest accordingly.
A few potential investments you may want to avoid include companies who are multinational. Any question about trade could hurt their profitability. Another to watch would be companies who are sensitive to increasing interest rates, any movement higher could be a negative on their balance sheets. Finally, any company that operates in Mexico will be under the microscope as it is no secret what Trump was suggesting here.
Before making broad changes to your portfolio I think it’s important to ask yourself whether you are a long-term investor, or a short-term speculator. Said another way, a properly designed investment portfolio should be able to stand the test of time, with some small changes along the way. Speculators are hoping to cash in on very short-term trends and need to make many assumptions; the success of their strategy relies on the accuracy of these assumptions. In comparison, long-term investors who maintain a diversified portfolio may not need to make any changes and have confidence knowing they are in well managed basket of securities. In either case, it’s best to consult with your Wealth Advisor before making changes.
Senior Wealth Advisor
Scotia Wealth Management
Derek Fuchs is a Senior Wealth Advisor with Scotia Wealth Management in Red Deer and holds the designations of Chartered Investment Manager, Certified Financial Planner, Financial Management Advisor, and is a Fellow of the Canadian Securities Institute.