The US election: What it means for your investments as an expat in Europe
Markets go up over time, don’t make changes to your long term strategy based on short term factors.
Here we are at the end of US election week, with the news that Donald Trump has been (re) elected president of the United States of America.
The US election has been polarising, not just with US voters, but with seemingly everyone- economists, market commentators, pundits- having an opinion on what this could mean for the US and the world.
Our view here at Black Swan Capital is that markets are unsentimental and that whatever the outcome, markets will remain largely unchanged.
A US President can influence financial markets and the economy to an extent with their economic policies and trade agendas, but often not as much as headlines will suggest. Let’s summarise the ways a Trump presidency could affect markets. Trump is seen somewhat contradictorily: one the one hand he is in favour of a free market. A business friendly free market approach could be considered to see stock markets rise in the short term. On the other hand, his rhetoric is strong on tariffs and trade sanctions. If he enacts this, it might push up prices in the US which will be inflationary and can weaken the economy. If he does this, we can expect there will be retaliatory tariffs from other countries, leading to higher prices, inflationary pressure, and a reduction in international trade. The Trump populist position of being anti-globalisation, ‘America first’ will be managed by pragmatism. These actions may lead to a stronger US dollar and a weakening of the US Treasury position in the short term.
Having summarised what could happen it needs to be stated that the degree of influence a President can have on financial markets is often overstated.
Ultimately, it is usually broader macro events that drive economic and stock market performance, particularly in the longer term.
Let us consider how the question of stock market performance and presidential tenures relate, i.e. is it correlation, causation, or coincidence?
Does the stock market do well or poorly because of a particular President, or did it happen to grow or fall when a President was in the White House due to other factors?
If you look at the chart below from Investopedia it shows stock market performance under each President since WWII. Partisan biases aside, most would deduce that external factors may be more impactful than whoever is President. I am sure G W Bush and his supporters would argue that! As the only post WWII president other than Nixon/Ford to experience negative markets across his entire tenure, he may point to the Nasdaq crash that preceded him, 9-11, the fist Iraq war, and the Enron & WorldCom financial scandals. All other post-war presidents, both Democrat and Republican, can report having overseen their country as the market grew.
Other than GW Bush & Nixon 2/Forde, the stock market has grown in value under every President. Markets go up over time.
It is illustrative of three key points:
Presidents may have some impact, however it is often limited and short term;
Events that determine stock market performance over a 4-year Presidential term may be external and even irrelevant to, a political party or particular President; and
In any given period markets may go up or down, but in the long term will tend to rise. The market will continue its long-term trend.
What does this mean for the global economy and more importantly for your investments over the next four years?
This is the key question everyone is asking.
Our response: what are your goals and what is your timeframe? The answer to these questions should drive your financial plan, portfolio management and investment decisions.
Remain focused on the time frame of your goals and act accordingly. Don’t react.
What about the short term and how should one respond?
Again, it depends on the specific circumstances of your position. Short-term movements in asset prices are not necessarily indicative of long term trends.
In addition, we need to consider that rhetoric and action are often not aligned.
In summary, we recommend all expats living in Europe should manage their financial plans and investment portfolios with a forward view and a clear focus on their objectives, and not looking back at what just happened, or speculating on what might happen based on the latest news.
If you would like to consider how you should manage your portfolio in relation to changes within your life plans or the world, speak with us. You can contact us at info@blackswancapital.eu for an introductory discussion.
