Client Letter: Post Election ThoughtsSubmitted by Alsworth Capital Management, LLC on November 16th, 2016
A Recap: Donald Trump is now the President-Elect, ending an incredibly divisive campaign with the biggest political upset in U.S. history. In my last letter, I stated that Hillary Clinton was the substantial favorite based on virtually every poll with any historical accuracy. She had the lead early in the campaign and through it all, she maintained a substantial probability of winning. Admittedly, the country remained very evenly split and the popular vote was expected to be very close. In a stunning upset, Trump was able to bring out new rural voters to a degree not seen historically and not captured in the polls. They overcame the urban Clinton leaning population centers that were expected to push the electoral college vote in her favor. Trump ended up winning a broad number of states, taking a significant margin in the electoral college, to the surprise of nearly everyone. Hillary Clinton garnered more votes when the votes were all tallied, but Trump’s electoral college victory is what mattered in the end. The election was very much an underdog victory. Not only did the reputable polls have Clinton in the lead, Trump’s own campaign gave his odds of winning a scant 30% chance one week before the election! Leading up to the election, markets sold off as Clinton’s prospects were hurt by the notice from FBI Director Comey that he was reopening the investigation into her emails. After Trump’s victory, overseas markets sold off and the futures markets that trade in advance of the next day’s opening bell, sold off dramatically. It seemed that the concerns of market volatility following a surprise Trump victory were coming to fruition. In anticipation of the volatility, I went into work early, on only an hour or two of sleep, and placed stop loss limit orders in case the selloff continued. In yet another twist to the story, the market ultimately opened marginally positive and ended up on a strong positive note and never triggered the stop loss orders.
Divided Nation: I loathe the way in which political strategists split us up into voting groups based solely on the color of our skin, our gender, where we live, our education level or our level of wealth. In personal experience, I find these labels to be unpredictive in determining how people prioritize and give weight to various issues. They may help explain why certain folks feel a kinship with certain candidates, but they do little to help explain which governing issues are the highest priority for each individual citizen. Through the exit poll interviews we know that some voters chose Trump because they believed his campaign supported their bigoted viewpoints. However, most Trump voters said they voted for him because they were hurting financially and they believed he was their best chance at improving their job prospects. We know that some people voted for Hillary Clinton because they believed it was important to have our country’s first female president. However, many people voted for her because they believed she was the most qualified and even tempered candidate. Both candidates were flawed individuals, as we all are, and there was plenty offered up by both sides to insight a vote for the opposing candidate as a protest vote as well. Regardless of how the political pundits have split us up or pinned us against each other, it is incredibly important that we recognize the validity of each other’s votes, opinions and fears. For every person that is jubilant over the election of the underdog plainspoken Donald Trump, there is someone that is scared to death that his presidency could usher in a wave of anti-minority culture. I believe it is instructive to recognize that not all Trump voters were motivated by social issues. Similarly, we can recognize the fears of many people that did not vote for Trump and not just dismiss them defensively. Now more than ever, I believe we need to listen to one another. These political lines are not drawn as uniformly as the pundits might suggest. You no doubt have family, friends and associates that voted in opposition to you and you will most likely be interacting with them this holiday season. If you are encouraged by the results, they may be despondent. If you recoiled at the results, they may be relieved. The nation remains incredibly divided and no politician can unilaterally fix that. Only the citizens themselves can reconcile and heal through open dialogue and empathy for one another. I have read many articles with advice from different psychologists warning against gloating or being overly gloomy about the election as we interact with each other. The overwhelming recommendation is to express our glee or vent our frustration with like-minded people. We also shouldn’t assume that someone is like-minded based on political identity factors, which could well be incorrect. Everyone has different factors that led to their vote and they deserve respect for their decision to exercise their right. They also deserve privacy, if they choose not to offer up their opinions.
Markets: I approach investment markets with the goal of being rational and unemotional. Donald Trump’s win was unexpected, much like the Brexit vote in Great Britain. Prior to his election, investment markets were panicky with the prospects of his presidency. After he was elected, he gave a conciliatory speech, Hillary Clinton conceded the election gracefully and he had an awkward, but otherwise uneventful, meeting with President Barack Obama. The markets have thus far reacted positively, reversing the initial economic fears. So, where do we go from here?
Trump was not a conventional candidate and throughout his campaign his policy discussions were vague. He has no political history to use in guessing what his policy proposals will be and he has not been specific in his responses to policy questions. As of this writing, he has named Republican National Committee chairman, Reince Priebus as his Chief of Staff, signaling that he needs the support of the Republican establishment. Yet, he also created a wholly new and equally powerful position of Chief Strategist for Stephen Bannon, former chairman of the controversial Brietbart News website. It is clear already that this is not going to be a conventional presidency. There are many voters that want him to come in like a whirlwind to “drain the swamp” and upset political norms and history. Voters have purposefully chosen an unconventional candidate and they expect results. With Republican control of the White House, House of Representatives and Senate, it is safe to assume that there will be some sweeping proposals put forth in the near term. The results of those policies have the chance of being very successful just as they have the chance of being ineffective and expensive, but they will almost certainly be significant.
There have been many people reading the tea leaves of Trump’s campaign promises and making assumptions of what that will mean for policy changes. I don’t believe these assumptions are based in fact and they seem to be simply reflections of the forecasters hopes or fears. At this point, we simply don’t know what the impact will be and I intend to hold tight until we have real data. I don’t recommend making significant shifts in your asset allocation based on your emotional reaction, either positive or negative to the election. We have positioned the asset allocation to reflect your long-term planning needs and risk tolerance. We have tactically shifted the portfolio based on prevailing fundamental valuations, which allows for a variety of potential economic outcomes. I would be weary of anyone that says they know how a Trump presidency will impact markets. I think it is prudent to be prepared for volatility and allow for a wider range of possible outcomes, both positive and negative, based on the uncertainty regarding this President. However, it is too early to draw conclusions based on policy proposals that have not yet been cast. For now, we wait for more data. In the meantime, I hope we can learn to communicate with our friends, relatives and neighbors, even if they disagree with our political choice.
Shane M. Alsworth, MBA, CFP®, CLU®, CIMA®
The views and opinions presented in this article are only those of Shane Alsworth and Alsworth Capital Management, LLC
Investments are subject to market risks including the potential loss of principal invested.
Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Sources: Wall Street Journal, Morningstar/Ibbotson data