Donald Trump’s unexpected election win points to uncertainty ahead.
Donald Trump’s unexpected election victory brings market and policy uncertainty in the short run. Trump’s agenda lacks detail and departs from the Republican Party tradition on trade, security and entitlements. Tapping into a backlash against the Washington status quo, he has often appeared at war with his own party and has surrounded himself with less-known advisors.
We expect an initial sell-off in risk assets and flight to perceived safe havens. We see emerging markets as particularly vulnerable due to their reliance on exports and investor sentiment. We expect steeper yield curves and see health care stocks outperforming due to likely reduced regulation under Trump.
Read on for an excerpt of Blackrock Investment Institute's commentary, or view the entire document here.
Summary:
- Trump’s planned income tax cuts could initially boost consumer spending, but might soon lead to a deterioration in the U.S. budget and rising rates, in our view.
- U.S. Treasuries may initially benefit, but long-term bonds could come under pressure if markets perceive Trump’s policies to widen the budget deficit.
- Emerging market (EM) assets could sell off in the short run due to their reliance on trade and investor sentiment.
- Steeper yield curves could pressure “bond proxies” such as utility stocks, and we see cyclical and value stocks outperforming.
- Health care stocks may rebound from recent losses on perceptions that a Trump administration would exert less pressure to lower drug prices.
- We could see relative outperformance by financial stocks in the medium term amid higher inflation and steeper yield curves.
To read Blackrock's full analysis, download the complete commentary.
In the past, election outcomes have formed patterns in the stock market, which may offer us clues for what to expect for the rest of 2016. Read about the historical impact of presidential elections on the stock market.
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