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Why a Donald Trump victory would be great for stock market investors
Most market experts agree that a Donald Trump victory on Election Day would not be welcome. Macroeconomic Advisers recently warned that a Trump win would trigger a 7% drop in the S&P 500 (^GSPC), wiping out over $1 trillion in investor wealth.
At the heart of these calls is the argument that Trump has been pushing unfavorable economic policies and would exacerbate uncertainty in an already jittery market. This is why Citi’s Tobias Levkovich sees a Trump win leading to a 3-5% decline. Elsewhere, JPMorgan’s Mislav Matejka warns that a Trump victory-related sell-off would not be quickly followed by a rebound.
But there is a glass-half-full way of thinking about this, and it’s great for stock market investors.
“When Trump is at inauguration … and you’re scared to death … that’s probably a buying opportunity,” DoubleLine Funds’ Jeffrey Gundlach said in June.
Indeed, bold and patient investors are likely to be thrilled by the prospect of buying stocks at a huge discount.
‘Be greedy when others are fearful’
It’s a counterintuitive way to think, but some of history’s most successful investors have made fortunes on it.
“One of the lessons I learned over the past 24 years as a research analyst (first job was Kidder Peabody), is the best investment decisions are ‘uncomfortable,’” FundStrat’s Tom Lee said in a note to clients earlier this year.
“Be greedy when others are fearful, and be fearful when others are greedy,” Warren Buffett says.
Buffett has been encouraging this type of thinking for a while. In fact, he wrote about it after one of the worst stock-market sell-offs in history.
“I can’t predict the short-term movements of the stock market,” Buffett said in a New York Times op-ed dated Oct. 16, 2008. “I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
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History is riddled with tough times. And yet the stock market has figured out a way to reward investors. (Image: JPMorgan Asset Management)
Indeed, sell-offs triggered by bad news has always proven to be a buying opportunity.
“In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president,” he added. “Yet the Dow rose from 66 to 11,497.”
The fundamental case for buying a President Trump sell-off
Buffett’s argument for the long term is time-tested, and fits well for folks who can wait years for things to turn around.
But there are also plenty of bullish forces that could kick in should the unexpected happen.
“[W]e don’t think the knock to U.S. equities would last long if [Hillary Clinton’s] rival were to emerge victorious,” Capital Economics’ Simon MacAdam said.
He explained: “A Trump presidency would presumably mean monetary policy staying looser for longer, which would be positive for the stock market, all else equal. What’s more, we think the accompanying narrowing of interest rate differentials with other economies, in conjunction with capital outflows into safe-haven currencies such as the Swiss franc and Japanese yen, should see the U.S. currency weaken against other ‘majors,’ thereby providing further uplift to U.S. equities by boosting the dollar value of overseas earnings.”
Loose monetary policy and a weak dollar have been around for much of the current bull market, so more of the same could prove to be a good thing.
No matter who wins, there’s likely to be an uncertainty premium keeping stock prices from going as high as they could. But such is the nature of investing: It’s hard. There’s always something.
“While this malaise is unfortunate, this too shall pass,” BMO Capital’s Brian Belski said on Friday. “Unfortunately, elevated investor angst is unlikely to magically evaporate completely after Nov. 8, 2016.”
http://finance.yahoo.com/news/why-donald-trump-would-be-good-for-stock-market-investors-182014339.html
Discussions
1 person likes this. Showing 28 of 28 comments
human beings are ever optimist in the long run....but gets irrationally panicked in short bouts.
2016-11-09 20:22
Am not surprise if Dow close green. Personal tax cut, corporate tax cut, jobs back into the US, manufacturing back into the US will help the US more. See if this really happen.
2016-11-09 21:02
DJ Futures from -800 early in the morning improved to -220 currently. See how the market goes.. very hard to predict ya.. hmm
2016-11-09 21:11
is easy to say than done. Move job back to US will increase the capex, unless the American is willing to accept wages same as Asian? :) Things have to be in balance, blue collar manufacturing moved to Asia for a reason.
2016-11-09 22:18
The Funds managers and investment banks wanted to take advantage of the market by creating panic in the public due to political uncertainty of the new president. They control the medias and they are deep pockets so its very easy for them to disseminate perceived negative information from their own expert analysis. They can only make more money during the uncertainty period whether in stock market, forex , commodity and etc.
2016-11-09 22:33
Big boys or market makers throw the shares to create panic to the retail investors to follow suit. Their purpose is to flush out retailers especially margin players. I don't care Grexit, Brexit, Trump.....it's not end of the world and the stock market is still available there. What's important is the quality of the companies that we are invested any future growth in revenue and profit. Of course, there are some margin players may not able to sustain the pressure from share price plunged due to panic selling even invested in good quality companies.
2016-11-09 22:46
Well...well...not surprise. Russia, Paris, London and Frankfurt are all green now. Earlier on losses more than 1%. Almost similar to Brexit, Grexit and US Clif...create panic to gain both ways.
Good to see how Bursa react tmr and also Dow closing.
2016-11-09 23:07
Trump is the game changer....His action is unpredictable but certainly offer a boost to the market. He has given an impression to the people that anything is possible so bull run confident resumes in Dow Jones.
2016-11-10 07:44
Dow solid green.....almost to a new high.....ho..ho...ho....early Christmas celebration I guess.
2016-11-10 08:45
Nikkei losses 900+ points yesterday and today open gain 900+ point. Can bursa catch back what they loss yesterday?
2016-11-10 08:47
http://www.thestar.com.my/news/nation/2016/11/10/najib-dont-take-voters-for-granted-prime-minister-also-hopes-trump-will-continue-policy-in-terrorism/
Najib now thinking he very hebat, giving advice to Donald Trump. Guess he will propose Donald kasi BR1M to Americans :-)
2016-11-10 08:49
How many millions did malaysia contribute to Trump election campaign to ensure Trump win (and US DOJ/FBI drop 1MDB case?)
2016-11-10 09:09
Read up the S'pore money laundering trial: - the insider who turned prosecution witness said there are 3 "fake Abrars".
2016-11-10 09:22
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
ktsk88
Trump wins is much needed for a complete changes in the US economies and the world for particulars. I supports his visions.
Hope TPPA is aborted completely coincide with his stance announced earlier.
2016-11-09 16:50