President-elect, Donald Trump will take the oath of office on January 20 and he’ll officially become the president of the United States. In the last few weeks of being the president –elect, his actions and inactions have been moving the markets. However, Trump’s ability to move the market will be amplified exponentially once he takes the oath of office.
The chief reason why president Trump will be a major market mover is that he is opinionated, blunt and he doesn’t have the career politician’s ability to sugarcoat words. If Trump doesn’t like your company, you can be sure to expect some damning tweets that could send your stock spiraling. Boeing already found out the hard way that Trump’s tweet could cause a stock to tank and Amazon’s Jeff Bezo is trying hard to get off Trump’s black book. This article provides insight into 5 trends investors must watch after Trump takes the oath of office.
Broad Equities could have a strong pullback
Equities have rallied strongly in the last nine weeks since Trump became the president-elect. The S&P 500 has gained 6.71% and the Dow Jones Industrials has gained 8.91% as seen in the chart above. The main reason behind the gains in equities is that Wall Street is speculating that Trump’s economic policies such as tax reductions could provide a boost for U.S firms. However, if Trump is unable to effect his proposed economic policies, stocks could give back most of those recent gains in an abrupt pullback.
Healthcare stocks could suffer bigger losses
Trump has been vocal about his plan to repeal the Affordable Care Act (also known as Obamacare). Opinion is divided on how dismantling Obamacare could affect the average American and it is hard to separate the fact from the sensational noise. However, we do know that Trump thinks that pharmaceutical companies are enjoying oversized margins and he’ll push for regulation to reduce the price of drugs. More so, we can submit that repealing obamacare could have a negative effect on the stocks of healthcare and insurance companies at least in the short term.
Construction and Defense Stocks might fare better
Trump has also been vocal about his plan to adopt a tougher stance on immigration, chief of which is building a wall along the U.S.-Mexico border. If Donald Trump continues along the usual lines of riling Mexico, we can reasonably expect the stocks of construction firms to see as boost with the expectation of increased government infrastructural spending in building a wall.
The outlook in emerging Economies will remain gloomy
Investors with exposure to emerging market economies such as Turkey and Mexico can expect to see a weakening in emerging market currencies against the USD in the forex market. The Mexican Peso is already down to all-time lows against the Dollar. We won’t see the end of the decline in the Mexican Peso until Trump makes a final decision on whether or not to build the wall. The Turkish Lira is also down to historical lows against the dollar as macroeconomic concerns continue to make investors uneasy.
The Economy might suffer more risk-off trade
Donald Trump is also very vocal about his distaste for China. He has accused China of manipulating the Yuan in order to undermine the U.S. economy. He has also taken issue with the migration of many American manufacturing jobs to China. However, Trump’s outbursts against China could lead to more risk-off trade in Asia because China is not the only country “stealing” America’s manufacturing jobs.
Nobody knows the specifics of Trump’s foreign policy and it would be interesting to see how he handles China. Nonetheless, investors with exposure to American firms who making or selling their products to China might want to prepare for increased uncertainty going forward.
It is hard to predict how the market will react under Trump because Wall Street has defied expectations at practically every turn by going against analysts’ consensus expectations. For instance, Trump’s victory in the election didn’t lead to a stock market crash as analysts had predicted. The performance of the financial markets in the next couple of weeks will provide clues on some trends to watch when Trump officially becomes POTUS.
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