Two years ago, I said several times in meetings with clients that I believed America was tired of having someone named “Bush” or “Clinton” in the White House. The electorate was ready for someone new. On that much, at least, I was right. (Although I’ll not comment here on the accuracy of my comments around Mr. Trump’s chances of winning; at least I was not alone on that one!)

Of course, last Tuesday’s dramatic result has unsurprisingly shocked the world and global financial markets. The initial reaction overnight led to large declines in Asian markets, the Mexican peso, and U.S. stock market futures as a Trump victory appeared increasingly likely. However, as the markets opened last Wednesday they all stabilized. Now, as I write this we have had eight trading days of market reaction, and what we have seen is that US markets are generally up, with value-oriented stocks and small companies leading the way. However, most other asset classes have declined slightly, while emerging markets as a whole have fallen more dramatically (although they still remain up significantly for the year.)

The wide range of potential policy changes brought by a Trump presidency and the uncertainty that that entails has concerned many investors over the past few weeks, and these are issues we’ve talked through with a number of clients as well. Given many investors’ high levels of anxiety, it’s important to reiterate that elections by themselves do not decide policy outcomes, nor do they generally direct the long-term health of the economy and the businesses that operate within it. Without knowing which policy proposals will eventually be enacted, and when or how they might unfold, making preemptive, emotionally charged investment decisions is more likely to hurt than help. Let’s take, for example, a company like Apple.  Next quarter’s earnings report will be dominated by how many iPhones, MacBooks, and other devices they sell, not by who was elected President of the United States.

As is always the case, our current investment posture already factors in uncertainty and a range of risk scenarios. For example, we are materially under-weighted to U.S. stocks because we believe they are overvalued and therefore less attractive given their risk than other asset classes. We are over-weighted to foreign stocks because we believe they are undervalued and have significantly higher return potential over our five-year decision horizon.  In the event of a severe stock market downturn in the US, the result could be a long-term buying opportunity.

It is not surprising that markets initially reacted in a knee-jerk fashion, which is often the case when events surprise them. We won’t react in that way, but we will be re-assessing our scenarios and assumptions (as we always do) as we gain more information. We have already been thinking about the possibility of a Trump victory (some of our clients were very convincing on why he would win) and have not been compelled to adjust our portfolios based on a lack of clarity regarding what policies might actually be put in place or what their impact could be.

We also can’t emphasize enough the importance of having a healthy level of respect for the highly unpredictable nature of the markets over the short term. We’ve learned this lesson repeatedly over the nearly 30 years we’ve been managing money for clients, and this awareness underscores the discipline we apply to the management of our investment portfolios as we work with clients to grow their assets over time.

We remain available to clients to answer any questions that you might have regarding your portfolio or the current market situation. Please do not hesitate to reach out as questions arise.

Best regards,

Jon P Houk, CFP