A 'Deplorable' Win for Trump!



Well…That was an interesting evening!

Republican nominee Donald Trump is headed to the White House as the 45th President of the United States.
We believe it’s important to stay focused on the fundamentals and merits of sectors, industries and companies when making stock market investment decisions. Those fundamentals historically tend to outweigh broad election outcomes.  Government policies and regulations affect every business, but we think individual companies and innovators drive long-term success.

We think the health care, defense, infrastructure and financial sectors will remain in focus during the Trump administration. Health care companies have been pressured in recent quarters by rhetoric about drug pricing and increased regulation. We may see an initial relief rally in pharmaceutical stocks, since that industry was an area of scrutiny for Democrats. However, Trump’s call to repeal the Affordable Care Act (“Obamacare”) could pressure health care services stocks, such as hospitals.

We think defense stocks may perform well in the future because we believe Trump will want to show allies and adversaries that he takes a strong stance on national security. We believe it is likely the defense budget will expand, which bodes well for companies dependent on government-funded defense contracts.

The Trump campaign said they would dedicate double the amount of spending Hillary committed to fix aging US infrastructure. This may benefit materials and industrials. Giant walls cost money.

We think the expected December interest rate hike by the Fed provides a positive scenario for the financial sector. Financials tend to benefit from rising rates because interest margin expands (they make more money), which is likely to create more profit. Improving economic activity typically points to more loan demand. A less-intense regulatory environment may provide an added benefit to the financial sector.

In our view, many investors underestimate the ability of companies to adapt to new policies or economic conditions. Strong companies with great products, services and market share tend to take advantage of opportunities to outmaneuver the competition. We think well-managed companies with solid business models and strong end markets tend to do well under all presidential administrations.

The bottom line is that President Trump, with a Republican Senate and House, has a chance to steer the United States toward much more rapid growth. Tax cuts, regulatory reform and a shift in decision making toward the states and away from the massive (and despondent) federal government will lift growth. As a net result, we expect policy proposals and legislation to favor growth over stagnation in the years ahead.

This is very positive news for US stocks, the dollar, real estate and industrial or agricultural commodities, but could be bad news for long-term bonds and precious metals. Those who count on subsidies from the federal government should beware. The government isn’t likely to be the same as it was in the past eight years.

Let’s describe it this way. In the past, when Mr. Trump bought a hotel, he didn’t fire the chambermaids and the air-conditioning guys; he fired the management. The US government has involved itself in every area of the economy. As one measure of this, compare the size of the non-defense federal budget to GDP—back in the early 1950s it was roughly 7 percent, today it is 18 percent. No wonder politics has become so nasty. Multiple trillions of dollars are at stake, and people will fight hard to keep them.

Mr. Trump has a big task ahead and we hope America will support him and fight for a bright future alongside its new president.

Evan R. Guido is director of The Evan Guido Group.





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