President Trump: how the markets reacted
Well we have another amazing failure of the polls and the bookies.
Trump was paying $5 for a win. It's Brexit all over again.
The markets bounced two days after the Brexit sell off, will they do the same thing again?
Its too cute to say "Buy" immediately but arguably this is of less impact than the Brexit which was the beginning of the dismantling of a significant global economic body.
This is simply the replacement of a reasonably sensible US President with a man that lacks credibility. But it is not a critical role policy wise.
The President is more about image. Congress will contain him and you never know, he might do OK in his role as Ambassador if Ronald Reagan and Arnold Schwarzenegger is anything to go by.
The 'Trumps in the White House' would have been a brilliant comedy show before the election. Now its a reality show and it will be hilarious. But it will be a 'show', and one day it will end.
What are the other issues this raises for the markets?
The IMF have said this will kick off a global recession which is almost certainly wrong and is based on the US adopting a Trump like protectionist trade policy. He is inexperienced but he is not stupid and his advisers are not stupid. The US is not going to shoot themselves in the foot on trade.
It has injected some economic uncertainty - that's not good for markets short term but we will rationalise it and start buying again when the price is right whoever is in the White House.
- A US interest rate is now less likely.
- The US$ is going to weaken short term. The Aussie dollar should rise. Again, all short term.
- Gold will rise temporarily until the market rationalises its fear of Trump which it will do quickly.
- If he really is anti-Wall St he will stop feeding them printed money. It was always a Wall St rort that they didn't funnel money into the economy but used it to make more money investing in anything with a higher return than 0% which is what the money cost them to borrow. This has to be worrying the share prices of the big investment banks and it is morally about time, but it shouldn't upset Australia.
- Janet Yellen is an Obama appointment. That could change. Even more reason for the FOMC to stand pat on interest rate policy.
- Contagion - This anti-establishment vote is a political lead that could have implications for politics in other countries.
- Failure - Trump has said a lot of things. A lot of Americans think he will make a difference, find them jobs, improve their lifestyles. What if he fails. The Trump dream is so fragile, based as it is on a show full of words not reality, Trump risks being an instant let down for all those who voted for him and the political backlash and void will not be good for the economy.
- CommSec (@CommSec) November 9, 2016
Where to for the markets from here
The S&P 500 is trading on 24x against the long term average of 17x. It has room to correct further.
The markets were in downtrend already, this confirms the break of the uptrend that's been in place since February. In the face of the current downtrend there's absolutely no rush to buy.
Any market operator with any experience will tell you that moments of extreme sentiment are almost always an opportunity. Your game is not to make grand declarations about the long term, but to let the market find its level and time the buying, which means waiting for the bottom not predicting it. When the rally starts, that's when you get involved, not before, and with proper discipline (quite easy) you can protect yourself from a mistake.
I have a Member who used to work in Collins Class submarines crunching stock market numbers in his spare time. A drilled trader. Experience taught him to develop a filter: if ever the US market ever fell 3% in a day, halve your holdings. If it falls 3% again, sell them all. Looks like you should be halving holdings.
What would you do?
We went into this with significant cash in our SMAss (37% in the Income SMA and 59% in the Growth SMA) - we were simply hedging our bets by taking some profits and losses as you would expect as we responded to a falling market and rather than rotate it straight back into the martket we decided to wait until this was out of the way. Bit of brains with a bit of luck.
Our game now is to wait for the market to hit its extreme and buy those stocks we've always wanted to invest in but haven't. There are a lot of them and the reality is that Trump's appointment will have no impact on company earnings for many of these companies. Ultimately I see this as a real opportunity to take advantage of a negative sentiment extreme. But don't jump in straight away...that would be a grand declaration that you can't make today. We'll try and time it for you in the Newsletter.
The ASX 200 now
This year's uptrend is well and truly broken. Note the big tail on the last candle.
We closed 105 points off the low today. And that was whilst we were anticipating a Trump win. Interesting.
The S&P/ASX 200 index ended the session down 1.9 per cent, or 101 points, after being up 57 points earlier in the day.
- CommSec (@CommSec) November 9, 2016
There is a price at which you buy whoever is in the White House.