US Elections and Market Reactions

So, against the odds we have woken this morning to learn that Donald Trump has won the race to become the President of the United States. With a Clinton victory apparently being the most likely outcome according to most, it comes as little surprise that there was an initial sell-off as markets responded to this new uncertainty in the only way they know how.

Asian shares were down heavily, the dollar had weakened considerably and gold was, perhaps predictably, showing gains above 4%. However, as the markets start to absorb the news, we have subsequently seen these initial reactions correct to a large extent, with the dollar recovering some of its lost ground and gold showing more subdued gains.

At this stage we feel it is too early to predict what might happen next. It is difficult to ascertain with Mr Trump exactly how much of his rhetoric has been heartfelt and how much has been hot air, aimed at stirring up a frenzy to attract the populist vote.

Certainly a weaker dollar is likely to be good news for gold and other commodity markets in the short term, although a more insular United States could be bad news for many exporting countries, particularly those in Latin America.

Our long standing clients will know that at Gould Financial Planning we are not advocates of overloading any one type of asset class too heavily, or of looking to speculate on the outcome of elections by positioning portfolios in a manner which could benefit from a particular result. The outcomes of two major global votes this year; the EU referendum and the US election, show that to speculate on these outcomes can quite easily see you caught out, and therefore our mantra of diversifying assets at both a headline and a sub-headline level continues to hold true.

As we saw with the “Brexit” vote, despite the initial shocks in the market our portfolios held up well to the pressure, and the level of diversification we advocated resulted in solid growth over the next five months. Whilst we by no means predict that the period following this election will see a similar pattern emerge, we are confident that in the event of market uncertainty a diverse portfolio of assets stands the best chance of preserving and enhancing your wealth over the long term without exposing you to undue risk.