Against all expectations, Donald Trump was elected president of the United States yesterday. And markets didn’t like it.
“Donald Trump’s election victory is unleashing shockwaves throughout financial markets as investors scramble to gauge the impact of the White House campaign that defied the odds,” Bloomberg explained. “Victorious Donald Trump is the devil Wall Street doesn’t know,” said another headline.
What should you do?
First of all, take a deep breath and:
- Although the unexpected is scary, nothing is that bad – or good. Few people thought that Donald Trump would win. Those who didn’t want a President Trump aren’t happy today. But remember that this won’t be as good, nor bad, as you think it will be. On the spectrum of “The sky is falling” or “It’s going to be fantastic and wonderful”, it’s going to be somewhere in the middle. As I wrote a few days ago, when you’re in the middle of something intense – like markets collapsing – it feels better (or worse) than anything else in the world. But it isn’t.
- Before you buy or sell – do nothing. Emotion is the enemy of smart investment decisions. The flight-or-fight instinct of humans means that we’re poorly suited to make rational decisions under pressure – and there’s no pressure like money pressure. This might be the right time to procrastinate, while you get your emotions under control. (See our report about how to avoid the investment pitfalls that are lethal to your portfolio here).
- Listen to people with experience. To a lot of the talking heads on TV (and also to many of the financial advisors who supposedly know more than them), markets in turmoil are as familiar as snow in Singapore. After years of relatively easy markets, many investors won’t know what to do in rocky market waters. Don’t let the anxiety of others drag you down. Experience is an expensive teacher. Be sure you tune in only to those people who have already paid.
- Markets always, always, always overreact – on the way up, as well as on the way down. (“Markets pare losses after plunging on Trump win,” announced another Bloomberg headline yesterday evening.) Usually you don’t realise that markets are overreacting because you’re caught up in the moment yourself (see point 2 above). Like yesterday, the pendulum can swing too far – and then correct itself within hours. But beyond the short term, overreaction can take months or years to work itself out.
- Hold on to gold. We’ve been talking for a long time about gold. It’s excellent insurance. Gold moved up more than 2 percent yesterday, and – as I explain in this updated special report on gold that we just put out last week – I think it has a long way to go.
- Interest rates probably won’t rise for a while.After 9 of the last 15 U.S. elections (since 1956), U.S. interest rates have gone up within the following year. For 10 of the last 15 elections, rates have gone up within 18 months. So if history holds, we can expect U.S. interest rates to climb over the next year and a half. However: The uncertainty that a President Donald Trump brings means that the Federal Reserve is probably going to hold off on raising interest rates – in December, and for a while after that.
- Don’t rush out to buy. I think there will be a lot of volatility in coming weeks. Markets will bounce around a lot. Unless you’re a day trader with the reflexes of a cat, and you can trade like a psychopath, don’t be tempted by volatile markets.
- Tread lightly in Asia. As we’ve been saying for a while, Donald Trump is no friend of Asia. No one knows how many of Trump’s campaign promises (and threats) – like labeling China a currency manipulator and scrapping long-standing geopolitical relationships throughout Asia – will turn into policy. Globalisation, which has been a key driver of the economic success of many countries in Asia over the past few generations, is under attack. There will always be attractive investment opportunities in Asia… but now they might be just a bit more difficult to find.
- The best stock market to invest in today? Ironically, the source of all of this current anxiety might also be one of the beneficiaries of it. Some sectors of the U.S. stock market, like financials, energy and infrastructure (and gold miners) will probably rise in coming weeks (see here for more details). Some segments of the American economy will be enormous beneficiaries of the change in presidency.
- But before buying anything, re-read this article… and think again.