What if Trump is President?
Thursday, September 01, 2016
What will the stock market do if Trump is President? That’s a good and fair question. Unfortunately, it’s a tough question to answer.
The question is being asked because investors are worried that a Trump victory will be bad for stocks. We share the same worry, although we still think the odds of such an outcome are low.
We also know that trying to predict short-term moves in the stock market is futile. There are many factors that influence stock prices and it is dangerous to draw conclusions based on simple linear relationships. In fact, one could conclude that Trump will be good for stocks based on market action this year. The near 20% increase in the value of the S&P 500 Index from its low in February has coincided with rising odds that Trump will take the Whitehouse. According to Betfair.com, Trump’s Presidential Winner Odds have increased from 15% (when U.S. stocks were at the low in February) to 25% today.
We believe stocks have rallied because investors have realized they were too pessimistic about the economic outlook at the beginning of the year, not because Trump’s popularity has increased.
Those who accept market volatility and steadfastly hold stocks for the long term typically do better than those who try to anticipate short-term moves in stocks because they spend too much time sitting on the sidelines missing out. In our opinion, the best bet is to believe that the value of good, well-managed businesses will increase in the long run.
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