It would be "yuge"
With the elections in less than a month, investors will face a significant turning point. Both presidential candidates have taken positions and expressed a desire to pursue agendas that will represent a departure from the current administration's.
While not the expected winner by most analysts, if Donald Trump becomes the next president, he will likely usher in several policy changes which will have significant impact on certain sectors of the financial markets. Given the continuing closeness in the polls (and the unreliability evidenced by the “Brexit” referendum) it seems appropriate to review this matter, discuss some potential outcomes and discuss investment strategy in the wake of a Trump victory.
Should Mr. Trump be elected, my assumption would be that the GOP would also retain control of both the House of Representatives and the Senate. It also seems likely that the Republicans will, regardless, expand their majority in the Senate in 2018 due to several state-specific factors. Given this potential scenario, this is likely to embolden the GOP leadership in congress, making it possible that the senate under a “Trump majority” would eliminate the filibuster, making legislative changes and executive appointments far easier. All of this is likely to give President Trump a great deal of flexibility and latitude.
TECH IS SPECIFICALLY VULNERABLE
Most obviously, technology companies would likely experience a significant transition. This has been presaged by the European Union’s regulatory changes in the last few years that have created increased legal and tax liabilities for these firms, but more significantly, the sector currently enjoys an intimate relationship with the Democrats. A change in the party controlling the presidency would leave it vulnerable and less profitable. Should Trump win, the ironic but intense hostility between Trump, his supporters on the “Alt Right” and technology companies over claims of censorship and bias will likely lead to policies that will place pressure on firms like Facebook (FB), Twitter (TWTR), Google (GOOG), Apple (AAPL) and Amazon (AMZN).
Beyond social media, the technology sector overall has been almost exclusively associated with the Democratic party, with more than 85% of donations going to the party and affiliated political action committees. Since 2012, the relationship has become increasingly poisonous with the Republicans over social and immigration issues. Mr. Trump has expressed specific hostility to Apple's (APPL) offshore manufacturing practices.
The industry has been highly reliant on work visa programs, and offshore accounting and tax strategies which make them particularly vulnerable to tax and trade policy changes that can be initiated from the executive branch. Indeed, many policies could be tailored to specifically disadvantage the technology sector - or even specific firms.
Most notably, Amazon (AMZN) faces risks as Mr. Trump has made it extremely clear that he believes that the company has a "a huge antitrust problem,” and founder and CEO Jeff Bezos’ ownership of the Washington Post seems to largely drive this ‘concern.’ Under a Trump administration, it seems likely the Justice Department will take an immediate and aggressive interest in the firm.
TRADITIONAL ENERGY INVESTMENTS ARE LIKELY TO BE MORE ATTRACTIVE
In contrast, Trump has also made it clear that certain industries would receive much more favorable treatment by his administration. Oil, gas, coal and other traditional energy firms would face an extremely different environment. While unspecific, Mr. Trump has been clear that his energy policies will be a repudiation of the Obama administration’s openly hostile approach to carbon-intensive energy producers. Trump’s specific tax proposals would also make such energy investment significantly more attractive. While the impact of such a favorable approach is less substantial in a world of sub-$50 oil, it’s reasonable to assume that the valuations of various firms in the sector will increase with such changes.
MUNICIPAL BONDS MAY BE LESS ATTRACTIVE
Finally, various municipalities are facing considerable budgetary problems attributable to long underperforming local economies, as well as pension and health care obligations to retired public employees related to demographics. These cities and states are overwhelmingly in Democratic majority regions (but not exclusively so). Depending upon the degree to which President Trump and Republicans in congress sought to inflict blows upon the Democrats (and their tolerance for residual casualties in economically distressed Republican strongholds like Alabama), relatively minor changes in accounting regulations could be devastating to these municipalities and have highly destabilizing effects on the municipal bond markets. The nature of this threat is much less clear, however, than that the threats potentially facing the technology sector.
HOWEVER, THE BEST APPROACH IS TO 'WAIT AND SEE'
At present, it appears that Clinton will win on the 8th. But, I remain less convinced than most of my colleagues - leading me to seriously speculate on the possibility of her losing.
Should polls start to make it obvious that Mr. Trump will likely win between now and the election (a remote possibility, I suspect), then I am inclined to significantly cut back on clients’ exposure to those companies in the technology sector that I've discussed here. However, if the polls continue to show a tight race with Secretary Clinton, then I am inclined to wait until after the election to make adjustments, in particular because I believe the majority of investors will continue to fail to appreciate the significance of a Trump victory in the subsequent market trading days - providing us with an opportunity to adjust accordingly.
While not the expected winner by most analysts, if Donald Trump becomes the next president, he will likely usher in several policy changes which will have significant impact on certain sectors of the financial markets. Given the continuing closeness in the polls (and the unreliability evidenced by the “Brexit” referendum) it seems appropriate to review this matter, discuss some potential outcomes and discuss investment strategy in the wake of a Trump victory.
Should Mr. Trump be elected, my assumption would be that the GOP would also retain control of both the House of Representatives and the Senate. It also seems likely that the Republicans will, regardless, expand their majority in the Senate in 2018 due to several state-specific factors. Given this potential scenario, this is likely to embolden the GOP leadership in congress, making it possible that the senate under a “Trump majority” would eliminate the filibuster, making legislative changes and executive appointments far easier. All of this is likely to give President Trump a great deal of flexibility and latitude.
TECH IS SPECIFICALLY VULNERABLE
Most obviously, technology companies would likely experience a significant transition. This has been presaged by the European Union’s regulatory changes in the last few years that have created increased legal and tax liabilities for these firms, but more significantly, the sector currently enjoys an intimate relationship with the Democrats. A change in the party controlling the presidency would leave it vulnerable and less profitable. Should Trump win, the ironic but intense hostility between Trump, his supporters on the “Alt Right” and technology companies over claims of censorship and bias will likely lead to policies that will place pressure on firms like Facebook (FB), Twitter (TWTR), Google (GOOG), Apple (AAPL) and Amazon (AMZN).
Beyond social media, the technology sector overall has been almost exclusively associated with the Democratic party, with more than 85% of donations going to the party and affiliated political action committees. Since 2012, the relationship has become increasingly poisonous with the Republicans over social and immigration issues. Mr. Trump has expressed specific hostility to Apple's (APPL) offshore manufacturing practices.
The industry has been highly reliant on work visa programs, and offshore accounting and tax strategies which make them particularly vulnerable to tax and trade policy changes that can be initiated from the executive branch. Indeed, many policies could be tailored to specifically disadvantage the technology sector - or even specific firms.
Most notably, Amazon (AMZN) faces risks as Mr. Trump has made it extremely clear that he believes that the company has a "a huge antitrust problem,” and founder and CEO Jeff Bezos’ ownership of the Washington Post seems to largely drive this ‘concern.’ Under a Trump administration, it seems likely the Justice Department will take an immediate and aggressive interest in the firm.
TRADITIONAL ENERGY INVESTMENTS ARE LIKELY TO BE MORE ATTRACTIVE
In contrast, Trump has also made it clear that certain industries would receive much more favorable treatment by his administration. Oil, gas, coal and other traditional energy firms would face an extremely different environment. While unspecific, Mr. Trump has been clear that his energy policies will be a repudiation of the Obama administration’s openly hostile approach to carbon-intensive energy producers. Trump’s specific tax proposals would also make such energy investment significantly more attractive. While the impact of such a favorable approach is less substantial in a world of sub-$50 oil, it’s reasonable to assume that the valuations of various firms in the sector will increase with such changes.
MUNICIPAL BONDS MAY BE LESS ATTRACTIVE
Finally, various municipalities are facing considerable budgetary problems attributable to long underperforming local economies, as well as pension and health care obligations to retired public employees related to demographics. These cities and states are overwhelmingly in Democratic majority regions (but not exclusively so). Depending upon the degree to which President Trump and Republicans in congress sought to inflict blows upon the Democrats (and their tolerance for residual casualties in economically distressed Republican strongholds like Alabama), relatively minor changes in accounting regulations could be devastating to these municipalities and have highly destabilizing effects on the municipal bond markets. The nature of this threat is much less clear, however, than that the threats potentially facing the technology sector.
HOWEVER, THE BEST APPROACH IS TO 'WAIT AND SEE'
At present, it appears that Clinton will win on the 8th. But, I remain less convinced than most of my colleagues - leading me to seriously speculate on the possibility of her losing.
Should polls start to make it obvious that Mr. Trump will likely win between now and the election (a remote possibility, I suspect), then I am inclined to significantly cut back on clients’ exposure to those companies in the technology sector that I've discussed here. However, if the polls continue to show a tight race with Secretary Clinton, then I am inclined to wait until after the election to make adjustments, in particular because I believe the majority of investors will continue to fail to appreciate the significance of a Trump victory in the subsequent market trading days - providing us with an opportunity to adjust accordingly.
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