The general election is over and the people have spoken. Donald Trump will be the 45th President of the United States.
The run-up to November 8th has shown that our country is sharply divided politically. Some people will be happy and others disappointed by the result. However, it’s important to avoid letting your personal political beliefs and emotions cloud your long-term investment decisions.
Our job as your financial advisor is to help you navigate your way through the upcoming economic and political changes. Forecasters can be wrong, and we have seen that pollsters can be too. We avoid making big bets based on crystal ball gazing. So how do we see the future?
As students of history we think that countries that keep their governments relatively small, in terms of spending, regulation, and tax rates, will provide their residents with an advantage in pursuing financial prosperity. Regardless of who won this year’s election, we think that economic growth in the U.S. will generally continue, even with the policy mistakes the winner may make.
Since 2009, we have experienced what we’ve been referring to as a “Plow Horse Economy.” That means that the macro-economy has gradually recovered even as many people have not seen much of an improvement in their individual economic lives. The overall economy has grown despite the fact that debt, regulation and political turmoil have acted as a “Plow” holding the economy back. Despite this drag, the major U.S. stock indexes are up almost 50% over the past four years.
We remain constructive on the economy and the markets. With the election in the rear view mirror, we expect the Federal Reserve to begin its long, slow walk to raising interest rates from today’s near-zero percent. We expect those moves to be very gradual and to have little long-term effect on the market.
One other statistic makes us optimistic for the future. Consumer spending is said to account for 70% of the U.S. economy. Unfortunately, that vast middle class that we think of as the “average consumer” has not seen much in the way of a fatter wallet over the last few decades. That was one reason for the popularity of Trump’s message to the middle class that he would restore good paying middle class jobs. We believe that if he is able to follow through on this promise, a resurgence of earnings growth by the middle class will be a positive for the American economy, and hope that he is able to implement feasible policies to promote such growth.