After a long election season, Donald Trump has won the presidency and the Republican Party now controls both the House and Senate. What does it mean for everyone’s portfolio? Although it is still very early, here a few of our thoughts on the potential impact to the investment landscape:
Most segments of the healthcare industry – specifically pharmaceutical manufacturers (drug companies), pharmaceutical distributors and pharmacy benefits managers (PBMs) – will likely benefit from a Trump victory and early trading seems to confirm that. Secretary Clinton made clear in her campaign that she wanted to rein in drug pricing and reform different aspects of the pharmaceutical distribution industry. These businesses are where most of our client’s healthcare investments lie and are now unlikely to change dramatically due to regulation. Health insurers, of whom we own very little, are likely to suffer with any potential repeal or rollback of the Affordable Care Act.
Financial companies like banks, insurers and payments processors are also likely beneficiaries of a Trump victory. Under semi-continuous scrutiny since the financial crisis, “Wall Street” is unlikely to be punished as they might have under a Clinton presidency. For example, former Wells Fargo CEO John Stumpf’s recent Senate Banking Committee hearing revealed many lawmakers’ desire to further rein in the banking industry. The balance of power has now likely shifted away from that perspective which is a positive for investors in that sector.
On the fixed income side of the equation, a potential outcome of the Trump presidency is that long-term interest rates might rise more quickly than previously expected, which would hurt long term bonds (of which we own very, very little). Long term interest rates, like the rate you pay on a 30-year mortgage or receive on a long-dated Treasury bond, are heavily impacted by inflation expectations. After all, if you loan someone money for a few decades, you want to be sure the money they repay you with is still valuable by the time you receive it. Why the potential uptick in inflation? Infrastructure projects funded with fiscal stimulus, which has been a hallmark of the Trump campaign, is typically funded by government borrowing. When governments increase their borrowing they often have an incentive to inflate their currency to pay borrowers back with cheaper dollars over time. But inflation, which has been relatively docile in the past few years, will likely take a while to heat up and so there is no immediate cause for concern.
Finally, domestic companies that are large exporters might experience temporary volatility as the market assesses how proposed trade renegotiations might impact their businesses. Our view is that any trade renegotiations, if they occur, will take far longer than many expect. The intricacies and functionality of Brexit (the United Kingdom exiting the European Union), which also recently surprised markets, are still being worked through with no near term end in sight.
These are some of our initial thoughts on how the change in administrations will likely impact investor portfolios. As with the recent Brexit surprise, which shocked the markets but is now old news, we think a measured, even-keeled approach to any market surprise is the best course of action.