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November Commentary: President-Elect Donald Trump

It has been almost two weeks since businessman Donald Trump became the President-Elect of the United States, which means it has been almost two weeks since our collective jaws dropped and we began trying to figure out what the next four years might look like.


Given that prognostication has not exactly been an exact science of late, it is hard to tell where we are headed. Prior to election night, conventional wisdom had been that the U.S. investment markets would react more harshly to a Trump victory than to a Clinton win, simply based on the "unknown" factor of Donald Trump, and the anxiety the unknown always brings to the market. About halfway through poll closings, it looked like conventional wisdom would play out. As a Trump victory became more likely, Dow futures fell all the way down to an eight-hundred-point drop. Even the next morning, after President-Elect Trump gave his victory speech, the market opened down 250 points right off the bat. And yet, by the end of the day, the market was up for the day and just a couple of days later, the Dow set all-time highs. In fact, as of the writing of this article, the market was up over 3% since the election of Donald Trump. As it turns out, conventional wisdom, much like the polls, was totally wrong about the results of election night. 


So, what happens now? Donald Trump ran a campaign that promised the largest tax cuts in 30 years, a re-negotiation of free trade agreements including NAFTA, significant infrastructure spending on roads, bridges and of course...the wall, repeal and replacement of Obamacare and 25 million new jobs. It is an ambitious economic agenda in the best of times. As President-Elect Trump assembles his team of advisors and Cabinet members, we are left to wait until the rubber hits the road in January. 


At this point, it would be exceedingly dangerous to turn speculation into something more. While it doesn't stop the pundits on your favorite cable news network from doing just that, it does stop yours truly. Our basic premise of avoiding market timing remains our strongest advice. This is no more a time to get in or pull out of the market than any other time. Movements upward and downward are, at this point, just emotional reactions, and not a sign of things to come, in either direction. 


That said, there are a few things that we will be watching very closely, the first of which is the potential impact of an Obamacare repeal and replacement. It should be said that no matter what anyone says, this is not something that can or will happen on Day One. The law is extraordinarily complex and while yes, millions of Americans unhappy with their premium increases, there are also millions of Americans benefiting from the federal marketplace. Secondly, there will be no way to "keep the good parts of the law" (the ban on pre-existing conditions and allowing young adults to stay on their parents' plans) and get rid of the rest. The "good parts" of the law are what raise prices for insurance companies, the federal government and the millions of Americans whose premiums have gone up. You can't keep the expensive parts and get rid of the more affordable ones. It's simple math and just doesn't work. 


Finally, and this is important, let's not forget that while repeal can happen in one swoop, replacement takes more than a simple Republican majority. It is unlikely that even the most Obamacare-hating members of Congress would vote to repeal major legislation without a suitable, agreeable alternative. None of this is to say that the law will not be repealed and replaced. The Republican caucus certainly has the momentum to do such a thing. But at this point, I wouldn't hold my breath to see major insurance premium rate changes in 2017.  


Another hot topic to be watched as the new Administration takes hold is the impact that increased infrastructure spending could have on inflation. There is no doubt that our roads, bridges and tunnels need serious work; a drive down the New Jersey Turnpike will show you that. There is also no doubt that federally dedicated funds in this area would create jobs. In fact, if the other major political party were going to be in power, one might call this a form of stimulus. 


The problem is that it could backfire. When it comes down to it, unemployment numbers are down near 4.9%, which is considered full employment for the U.S. workforce. Even if there is a disagreement among the political class about the validity of these numbers, unemployment is low and the market is near record highs. Adding an economic stimulus to an economy that doesn't have much room for expansion could force inflation up at more than the gentle pace that economists agree is needed. Spiking inflation is the very thing that the Fed has tried to avoid through its turtle-like pace of raising interest rates. A spiking inflation could create a recessionary environment. This is not to say that infrastructure is bad, nor is it to say that there are not people who need work. The opposite of both is true. At this point, we watch what happens and see where the pitfalls might be. 


Lastly (for now), we will be paying attention to regulatory policy and its impact on various sectors in the marketplace. If the two weeks since the election are any indication, investors believe that de-regulation of the financial sector is coming, meaning that banks are about to get richer, and infrastructure investments (as mentioned above) are on the horizon, meaning that stocks in the railroad, shipping, and engineering sectors are also seeing rising stock prices. 


The victims of this? Tech stocks, for one. Stocks like Apple, Facebook, Amazon, Google and others have seen drops since the election. Don't feel too bad for them; the truth is that many of these stocks had done exceedingly well in the recent past. Energy stocks are also taking a hit, with the very notable exception of oil companies. Let's call a spade, a spade. A Trump Administration is not going to be too friendly to clean, renewable or green energy. It is, on the other hand, going to pursue a larger place in the oil and gas universe, meaning that that stocks like Chevron and Exxon should continue to profit in 2017.


All of this leads us back to the initial question...what do we do now? The most important thing we can do is be flexible. Understand that right now, the direction of our economic policy is a bit of a moving target and we don't want to fire our bullets while things are still being sorted out. The fact is that the market remains at or near all-time highs, leaving us with the same feeling we had before the election—that large-scale returns are going to be difficult to find, but there is room for continued growth.


As unsettling as it might be, we must wait and see what happens. And when things do happen—when directions are chosen and policy is made, we will make appropriate changes to adjust to a changing economy. Just like before, investing is a marathon, not a race, so either way we will keep on going so we have the energy to get through the whole thing. 


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