US Elections: Its Trump all the way – Fidelity

Fidelity International’s investment team comment on Donald Trump’s victory in the US presidential elections.

Key Quotes

“Angel Agudo, portfolio manager of the Fidelity American Special Situations Fund

“Within equities, following an initial spell of volatility, a reduction of the corporate tax rate (if implemented as proposed) would be supportive in the near- to medium-term.

“In an election marked by wide differences on policies, there was one area of rare agreement between Clinton and Trump: Fiscal Spending. With monetary policy widely seen as near its limits, the next policy lever to be pulled is likely to be fiscal stimulus, in particular, infrastructure spending. In general Republicans are considered to be pro-defence and hence it is no surprise that Donald Trump has voiced his opinion for an increased defence budget. Given both Trump and Clinton had agreed on these areas, some of this has already been discounted in the market but there are prominent investment opportunities in both areas.

“As the market gets over the hype around the election and its results, the next focus will be on the US Federal Reserve and the next interest rate hike. US inflation and wages have continued ticking up and until recently a December rate hike was very likely. We will have to wait and see whether this unanticipated Trump victory will have any bearing on their decision. Looking into 2017, the US economy remains in good shape and should continue to improve at a moderate pace going forward.

Nick Peters, multi asset portfolio manager, Fidelity International

“A Trump Presidency also feeds into greater political uncertainty and undermines confidence in the openness of the international system. While these are abstract risks and it’s difficult to assess how they will be priced in by markets, they are likely to at least depress sentiment. The best option for a Trump Presidency is that his policies are stymied by Congress, with even the Republicans likely to oppose certain proposals.

Dierk Brandenburg, senior sovereign analyst, Fidelity International

“People want change and are prepared to take the risk on Trump. His unpredictable behaviour throughout the campaign and his unorthodox views will not go down well with markets, at least in the short term.

“Trump’s election will be a shot in the arm for populist movements around the globe, and will surely embolden Brexiteers in the UK, who will see in him a friendlier counterparty to negotiate trade deals with. There will be several key elections in Europe in the next 12 months bearing chances of more surprises.

“The much looser fiscal policy will not make it any easier for the US government to balance its budget, with the upcoming debt ceiling debate, in March 2017, which will become even more a recurring topic of conversation in Washington. As an initial estimate, the proposed fiscal stimulus will lead to a doubling of outstanding federal debt in the next decade and to a dramatic widening of the US primary deficit.

“Higher volatility and uncertainty may push the Federal Reserve to keep rates on hold at the December meeting, contrary to what’s been expected by markets until very recently.

Dominic Rossi, Global CIO Equities, Fidelity International

“The immediate impact will be on the Fed. The probability of a hike in interest rates in Dec, followed by two further hikes 2017, has fallen sharply. The dollar which has been trending higher in anticipation, has consequently reversed. Both were threats to the bull market, and these have now been postponed. Monetary policy will remain accommodative.

“Republican control of both Houses offers an opportunity to break the political gridlock of recent years in domestic areas of policy. There will be an eagerness to roll back many Obama initiatives, above all Obamacare.  

“But none of this will convince investors in the short-term.”