It is perhaps an understatement to say that last week was eventful! Donald Trump won both the popular and electoral votes to become the next President of the United States. While we don’t want to comment on the political fallout, we do want to share our current thoughts on how it will affect our thinking surrounding your portfolio management.

In the days after the election, the markets were finally able to “relax” now that we had an outcome to the election that was uncontested, which dramatically reduced volatility and was generally quite positive for the markets in the short term. However, much of Trump’s campaign focused on protectionist policies, including tighter rules on immigration, global tariffs, and lower taxes. All of these measures have the potential to be inflationary, and while the U.S. Federal Reserve has been slowly lowering interest rates, the U.S. 10-year Treasury bond yield has actually been rising, sending a very different message than the U.S. Federal Reserve.

The rise in bond yields means the bond market is less confident that inflation is under control and instead sees the possibility of future rate hikes. The same warning bells can be seen with U.S. mortgage rates, which have yet to decrease despite the U.S. Federal Reserve’s rate reductions. This might all seem like a United States problem, but it’s important to remember that the U.S. is Canada’s closest trading partner, and our bond market will, to some degree, follow theirs and should inflation become an issue south of the border, it will have an impact here too.

Donald Trump ran his campaign on protectionist policies, but if Treasury rates remain high, effecting the total debt and the ability for the government to borrow at lower rates, his hands may be tied. It is too soon to tell what direction the new Republican government will take and how quickly, if ever, they will implement their stated agenda. We will know more by the end of January, once Trump has officially taken office. In the meantime, we are maintaining discipline through investment process and rebalancing the accounts as necessary.

 

Livingston Wealth Management Group