Trump Wins. What Happens Now?

11.09.2016 - Ronald J. Sanchez

Republican Donald J. Trump made history yesterday, winning the race for president by a convincing margin over his Democratic opponent, Hillary Clinton. Republicans also maintained control of Congress.

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The message is clear: Americans still want change.

With three races still too close to call, Donald Trump has amassed 289 electoral votes and, depending on the final outcome of these three races, could finish with a total in the low three-hundreds. Many of the congressional races that were deemed to be toss-ups went the way of the Republican candidate thanks to the significant outperformance of President-Elect Trump.

While we assess the broader implications of a Trump presidency, here are our initial observations:

  • After years of political gridlock, last night’s outcome made it clear that divided government as a source of legislative paralysis in Washington D.C. will no longer be tolerated. Now that control of the White House, Senate, and the House of Representatives is with the Republican Party, both the mandate and the structure to legislate are in place. 

    • Trump’s message resonated with many Americans, reflecting what some characterize as a broad degree of disenfranchisement and lack of trust in the government, a trend we have seen taking shape across the globe. His appeal as an outsider who promises to bring sweeping changes to Washington, combined with the support he’ll presumably receive from a Republican Congress, implies that we will see significant policy changes over the course of his administration.

    • Global markets priced for a continuation of the status quo were clearly pressured by the outcome. As the consensus expectation of an early night faltered, the Mexican Peso provided the first indicator that markets were offside. Equities followed closely in step, with overnight S&P 500 Futures reaching their limit down, erasing Monday’s rally. Markets bounced off their lowest levels as we moved toward the open, but remained sharply lower with signs pointing to a volatile, though orderly, trading day today.

    • It is important to remember that some of President-Elect Trump’s most ambitious campaign promises may be difficult to accomplish, for a variety of reasons. First and foremost is our system of checks and balances. Even with a republican majority in both the senate and the house, some of his more isolationist positions on issues such as immigration may prove tough to act on as the broader republican establishment gets to weigh in.

    • Some of his pro-growth stances on repatriation, broader corporate and personal tax reform, and infrastructure spending that align more closely with the established republican platform seem more likely to become enacted under the new congressional regime.
      • Trump has proposed reducing the number of federal income tax brackets, cutting the highest tax rate from 39.6% to 33%, lowering the corporate income tax rate, and repealing the estate tax.
      • A one-time repatriation tax could offer companies greater flexibility to invest for growth or return capital to shareholders.
      • As President-Elect Trump made clear in his victory speech, rebuilding highways, bridges, airports and schools will be at the forefront of his legislative agenda.

    Although short-term market volatility is expected, we are reminded that the US equity market has demonstrated resiliency after other political disruptions like sequestration, tax reform and gridlock in Washington, as well as threats from abroad, such as Brexit.

    Following January’s inauguration, as the rhetoric of the past several months takes shape into actual policy, our investment teams will continue to evaluate the ramifications of changes to relevant segments of the market. Importantly, we believe the underpinnings of the US economy remain in place to support a modest level of growth. We see a high degree of stability in corporate and consumer balance sheets, as companies and individuals have taken advantage of low rates and positive credit fundamentals to access capital and put it to work.

    Kyle Hutchinson, Doug Tommasone and Ed Perks contributed to this article.

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