How will recent US political events affect my investments?

Posted in Market, Investments, Stocks, Bonds, Andrew Ross

The Trump administration south of our border is increasingly becoming a wild card for stock markets, just as North American economies start showing some strength.

With Q2 GDP numbers announced in August for both the U.S. and Canada exceeding expectations, one would think that the path to higher stock market valuations would start to become a little clearer, but political concerns in the U.S. need some analysis to understand how their future direction might be affected.

Let’s take a look at some recent developments and asses whether the Trump presidency’s latest posturing will have a positive or negative impact on the stock markets in North America.

The protests and reaction to the recent Charlottesville protests and counter-protests. 

It is safe to say that President Trump mangled his staff’s instructions on how to conduct himself at the press conference, held in response to these events. He received condemnation from both Republicans and Democrats in response.

Then he managed to make it worse for his own party by lashing out at his party leaders, Mitch McConnell and Paul Ryan.

What impact might all of this bigotry and name calling have on the markets?

We believe a case can be made for a mildly positive outcome which may sounds counter-intuitive. Here’s why.

Future threats to the recovering economy come in the form of the present administration not proceeding with their pro-economy initiatives such as lower taxes, less regulation and infrastructure spending. We think Trump’s crazy response to Charlottesville and subsequent bashing of the leaders of both the Senate and House of Representatives may actually galvanize this two groups into working together to get legislations passed. Their success in the 2018 mid-terms will depend on it and Trump may have given them the catalyst.

The revolving door for White House staff.

The revolving door of White House staffers under the Trump Administration could also have an impact on stock markets, but in which direction? We think this could also be a positive.

The constant in-fighting and struggle for air time by the original White House staff has been a huge distraction and that era seems to be coming to an end. With the exit of Steve Bannon, Reince Priebus and Sebastian Gorka and the addition of John Kelly as Chief of Staff, the number of adults in the room has risen.

Fingers crossed that a calmer, more measured approach to governing may be upon us. The more stability we see from Trump’s inner circle of advisors, the better the markets should preform. The recently departed staff lent an air of chaos to the White House, and markets do not like uncertainty.

The uncertainty of trade negotiations.

There is some question about how trade negotiations, specifically NAFTA, will affect how North American stock markets going forward. That makes sense considering that Trump has tweeted several times lately that he would be willing to cancel it if the U.S. doesn’t get what it wants.

We do not believe this will have much affect on markets one way or the other. Trump tweets aside, all three countries involved in the talks have mature and level headed teams at the table who will be negotiating in good faith. The default would be a failed negotiation that results in maintaining the status quo.

Therefore, on balance, what looks like a political mess south of the border may, in fact, result in a net positive for stock markets here in North America and the strong GDP numbers recently announced should keep markets moving higher in the near term.

Source: Campbell Lee & Ross August 2017 Newsletter – sent by email to all clients.

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