The election results are in with Republicans controlling both houses (with slimmer majorities) of Congress and the Presidency. As I watched it all unfold into the early morning hours, it became clear the historic and unexpected election results caught pundits and the markets off guard.
The best comparable event in recent memory is the unexpected Brexit vote. Similar to the Brexit, the immediate reaction is to drive risk asset (stocks) prices lower and safety assets (gold) higher. I have written that the markets don't like uncertainty and that is especially true in the short term. Within two months of the Brexit, most assets had recovered in price, with the exception of the British Pound. Longer-term impacts can be much more fickle to determine and require more specific analysis.
One key takeaway from President-elect Trump's acceptance speech is the amount of fiscal stimulus for infrastructure that is likely to occur. This is a bipartisan issue and should have wide support. The impact of this stimulus is to increase federal debt, and in my opinion, will quicken the increase in Treasury yields especially at the long end of the yield curve.
With regards to stocks, I favor buying stocks on significant dips, but would be wary of certain stocks that could be impacted by more restrictive trade deals.
Much more to come from the PMAM team over the coming weeks about the longer-term impact on markets and the economy.
Tags: Viewpoints | Stocks | U.S. economy | U.S. election | Fiscal stimulus
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