Editors' pick: Originally published Nov. 10.
From a financial markets perspective, election night was the equivalent of a Roman candle - lots of sparks but no real detonation.
Yes, stock futures fell by 800 points as the tide turned toward Donald Trump on election night. But the U.S. stock market not only calmed down the day after the election, the Dow Jones Industrial Average actually rose, by over 200 points on Wednesday, and is up 127 points in early Thursday trading.
Wild volatility is par for the course on and near U.S. presidential election days. According to Bloomberg, in 22 elections dating back 90 years, the S&P 500 declined 15 times 24 hours after election day, losing 1.8%, on average. But stocks rebounded and climbed higher during the next 12 months nine times.
In fact, the financial markets could be being "short-sighted" over Trump's victory, warns a leading investment analyst at one of the world's largest independent financial advisory organizations.
"Against most analysts' predictions, the S&P 500 ended yesterday in positive territory," notes Tom Elliott, deVere Group's international investment strategist, on November 10. "In doing so, the S&P 500 Index wiped out a 5% loss by the end of trading that had been triggered by Donald Trump's surprise presidential election victory. "
Elliot says investors should focus on three planks of Trump's economic policy that are seen as beneficial to the U.S. stock market.
"First, there will be less regulations on certain sectors," Elliot says. "This will help banks, if repealing Dodd-Frank occurs, and will help mining and energy, if environmental laws are repealed. Plus, abolishing Obama's Affordable Care Act and the government's pressure on pharmaceutical companies to reduce drug prices to European levels, would boost pharma stocks."
"Second, the creation of an infrastructure fund to build bridges and repair roads will boost certain sectors through increased government demand," he says. "And third, Trump is seen as fiscally lax, following the record of previous Republican presidents. He has promised to lower taxes for companies and various segments of the population and his infrastructure projects will boost demand in an economy that is already growing at a decent pace of 2.9% annualized in the last quarter."
That said, if you're an investor wary of a Trump presidency, money managers contacted by TheStreet say there are some moves you can mull over, but an overhaul of your portfolio is nowhere near necessary.
Consequently, when you do sit down with your financial advisor as President-elect Trump heads to Washington, ask these key questions:
Should I adjust my portfolio risk levels?
Jake Loescher, a financial advisor at Savant Capital Management in Rockville, Ill., says any portfolio redesign should accommodate both financially how much risk an investor can afford to take and also emotionally how much risk an investor can stomach.
"If you originally worked with an advisor to have this discussion and make a determination for your short and long-term needs, your portfolio doesn't need to change, with Trump taking office," he says. "Remember that deriving positive performance from a portfolio can take time - asset allocation and diversification need time to work. Investors need to remain patient, avoid poor market timing decisions, and avoid speculative bets like changing a well thought-out investment plan solely because of political reasons."
Loescher also states that Trump can't directly cause stronger or weaker investment returns, and that he can't control the markets. "Presidents tend to react to economic conditions rather than proactively control them," he explains. "While uncertainty and unpredictable events can increase volatility in the short-term -- e.g. an election year -- research has shown than 14 of the past 16 election years have finished with positive returns - averaging 10.2%."
Should I change my long-term market exposure? - "The short answer is yes," says Jonathan Monjazi, founder of Monjazi Capital, in San Diego.
"Many clients who are concerned about the future may want to reduce their exposure to long-term bonds and stocks," he adds. "President-elect Trump brings an enormous amount of uncertainty. He has flirted with declaring national bankruptcy, which is already pushing
treasury rates through the roof. Certainly, this can just be a knee-jerk reaction to his winning, but reducing some exposure, especially for risk intolerant investors may be appropriate. A wait and see attitude may be appropriate for investors who want to preserve their gains."
Are there any sectors where I can capitalize on a Trump presidency?
One area that investors may want to discuss with their advisors are real estate investment trusts (REITs), says Crystal Stranger, president of 1st Tax Inc., and the author of The Small Business Tax Guide. "One thing I am certain about with a Trump presidency is that he will protect his own interests, which are still heavily real estate oriented," Stranger explains. "This also is the area of law and governance that he understands most thoroughly. Thus it seems logical that whatever laws are passed in his administration will only serve to benefit REIT investors."
Are there any other areas where I can capitalize?
Nick Ventura, founder of Ventura Wealth Management in Ewing, N.J., says that client portfolios need to reflect the reality of changes that are likely under the Trump administration. "For instance, infrastructure investments will be made in this country to stimulate economic growth and it's badly needed," Ventura says. "Engineering companies, raw material companies and the general industrial complex of this country should have a place in most client portfolios." Ventura, like Elliot, is bullish on the pharmaceutical and biotech industry. "This long-suffering sector was under the threat of a Clinton administration," he adds. "Clinton undoubtedly would have pursued price controls and greater regulation, and that threat would have stifled innovation. Life sciences stocks and funds represent sound value and now will operate in a much more accommodating Trump administration." The defense /aerospace sector could also be a target of interest, Ventura says. "That sector will be a beneficiary of the Trump administration," he adds. "He has committed to large increases in defense spending to modernize all branches of defense. This goes hand in hand with aerospace spending. There are strong stocks in this sector, with strong balance sheets that should be natural beneficiaries of this increased spending."
Should I make any big changes to my portfolio?
No, says Miguel Sosa, founder and financial advisor with Premia Global Wealth, in Coral Gables, Fla. "It's times like these that cause concern and it's a normal tendency to want to do something," Sosa says. "But much like a strong house in a hurricane, you have to trust that you built a good portfolio and that barring anything abnormal you should stick to your plan. Making small portfolio changes shouldn't be confused with an outright change in the strategic composition of each client's portfolio, like going to cash or buying gold."
As Trump promised, huge change is coming to Washington, D.C. No matter what your political persuasion, it's time to stop arguing over states red and blue. The only color that matters to investors now is green - the kind of cash you can make in a Trump presidency, if you listen to your financial advisor.