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Investors: Prepare For Trump

Trump
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So, this one will cost you…

Obviously, this past week was historic.  We had an unlikely candidate do well in an unlikely way.  President Elect Donald Trump’s win changes everything in politics, how media follows and reports on politics, and how the world will handle affairs within the United States.  Trump’s win also changes a few things in the markets, one of which I think needs your immediate attention.  To help you understand my suggestion, I’d like to first explain how I make investment allocation decisions.

I create investment allocations based on model portfolios designed and delivered to me from Blackrock, a very large mutual fund, ETF, and portfolio management company.  In my opinion, Blackrock is about as credible and capable in their field as any other you may find.  They have a large team of experts with more talent than I could ever dream to provide alone.  So, I leverage their talent and use it in my financial advisory client allocations and as the basis of my Tree SAApp DIY investment program allocations.  I only adjust allocations as necessary to provide a direct benefit to my investors, such as eliminating trading fees at TD Ameritrade.

Blackrock responded to the Trump win with the following message delivered Wednesday morning (November 9) before the markets opened:

“President-elect Trump campaigned on a platform of anti-trade policies which may spell the end of the bull run in emerging markets . Near term, uncertainty has gone up and we expect that EM assets will continue to reprice downward on that basis alone. Over the medium term, the fundamental outlook is darkening for economies that depend in large part upon selling goods to the U.S. consumer. Trade agreements such as NAFTA may be in jeopardy; tariffs on imports from China could impact the entire Asian supply chain. The most prudent course of action, in our opinion, is an immediate reduction in EM exposure.

Although this is a bearish shift in our view of the EM region, we are not so bearish on the outlook for risk assets generally, and on the U.S. in particular. In fact, there’s a case to be made that Trump’s policies will address key areas of economic weakness. Mercantilist policies could prove to be a tailwind for the corporate sector. Deficit spending could in fact turn out to be a tonic for the weak nominal growth that characterizes the U.S. economy.

We do not expect that Trump’s policies will be supportive of rate-sensitive instruments – U.S. treasuries in particular, and we anticipate that U.S. stocks, along with all global risk assets, will suffer their fair share of short-term volatility. However, our perspective is that U.S. stocks will likely respond to Trumponomics by resuming their upward trend. We are increasing our exposure in Large Cap U.S. equity to offset the reduction in EM.”

You can read the full details here:  https://www.blackrock.com/investing/insights/us-election-bulletin

Since this message, emerging markets funds have fallen precipitously, to the tune of roughly 2% per day since Wednesday.  I suggest you to sell your emerging markets positions too.  I made these sales yesterday for my managed clients.  Earlier this afternoon, Tree SAApp notified users of the trade.   The common question; should I perform these trades even though I am within the 30-day window for free trading at TD Ameritrade?  My answer is YES.  Set your sell orders this weekend so they will take place on Monday morning.  You will have to pay the trading fee at TD Ameritrade, but I think the potential losses you will prevent over the next few weeks will outweigh the trading fee.  Corresponding adjustments should be made to your employer plans.

If you are not a user of Tree SAApp or client of mine at Tree City Advisors, I would suggest you contact your financial professional to seek assurance you have a strategic approach to the changing economic and political landscape.

If you have questions, please contact me at brian@treecityadvisors.com

 

 

 

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