In shocking, inexplicable, unfathomable, polarizing, surreal fashion, Donald Trump wins the presidency of the United States, by winning the states of Pennsylvania and Wisconsin, along with all of the states expected to lean his way. Stocks, currencies, and commodity markets are in disarray. The S&P 500 futures sank approximately 100 points (~5%) around midnight, with a very strong snap-back ever since it became clear Trump would win (by midnight), and subsequently did win (at 2:30am). As of 5:00am the market is only down 1.5%.
- FED policy uncertainty is the largest actual negative. Yellen, Brainard, and crew, are likely “fired” in 2017. The market will need to come to terms with a new, and potentially much more hawkish, Fed Chair.
- The Yellen Fed may move to the sidelines now, on uncertainty, in December (Dec 13th), and in January (Jan 31-Feb 1st) which may be the final couple meetings of this Fed.
- Any move to soften the stance of ousting Yellen would be welcome by markets and act as a huge stabilizing factor.
- The change in Fed policy alone is potentially enough to take 2-3 multiple points (250-375 points or 12-18%) out of the S&P.
- Trends towards globalism, in place for 30 years, will be halted abruptly, and potentially reverse, which will weigh on economic growth, and inflation.
- Higher inflation and a hawkish Fed would lead to a continued sell-off in the bond market, and higher interest rates.
- The fragility of the 8-year old economic expansion will be tested in 2017.
- The loss of the election, on losing the state of Wisconsin, is a shocking repudiation of the Clintons, the Obamas, and global elites.
- All of the above factors, make the slight selloff in US equities, another major surprise. Seems prudent to hedge/get short immediately, as markets were not braced for this set of outcomes.
- While the outcome for the shorter term is decisively negative, there are longer-term items that may bode well for markets, including, lower income tax rates, lower tax rates on capital gains and dividends, a deal to repatriate foreign multinational earnings, and Trump’s philosophical bent towards capitalism.