US Election Update - Déjà Vu - TREXIT

Christopher Peel - Chief Investment Officer

Anti-establishment candidate Donald Trump has defied the odds and won the US Presidential election. The opinion polls were wrong yet again, and the silent majority that populates middle America has voted for sweeping changes to the heart of the political system. The billionaire, celebrity businessman has no previous political experience and has pledged to “make America great again”. The acrimonious leadership contest has divided the nation and it will take time to heal the wounds suffered during the bruising campaign. The Republican Party also gained control of both the House of Representatives and Senate, which in time will consolidate even more power under the control of the 45th President of the United States.

The response in markets this morning has been predictably emotional, but the period of heightened volatility and uncertainty will probably be short-lived. Equity markets have opened lower, the US dollar has fallen, US government bonds have rallied and the price of gold has risen. These are the same types of movements that followed the Brexit vote, and history suggests that the underlying economic fundamentals will reassert themselves within a few days.

Donald Trump has executed a “coup d’état” within the Republican Party and in the process, has won the trust and support of most of those that voted. His campaign was designed to win the election and this has been accomplished in extraordinary fashion.

Looking ahead, his focus will shift to reconciliation and the appointment of his advisory cabinet. Investors will have much to ponder in advance of Inauguration Day on the 20th of January 2017, but the US Federal Reserve remains on course to raise interest rates in December and the US economy is likely to strengthen under the new pro-business administration. Any significant sell-off in risk assets should be viewed with caution, and investors should remain patient during this period of leadership transition.

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