November 2016

Commentary: Trump Card


Heading into last nights’ election, most were prepared to awake to headlines heralding the 45th President of the United States, Hillary Clinton. All major polls and pundits showed former Secretary Clinton likely to win the election by various margins; none, however, seemed to predict the eventual outcome – a President Donald J. Trump, coupled with a Republican-controlled House and Senate. This commentary’s purpose is not to posit political views, it seeks only to re-cap the historic events which unfolded last night.


As at this moment, Donald Trump has been allocated 279 Electoral votes – which surpasses the required metric of 270 needed to win the Presidency – compared to Hillary Clinton’s 219. In contrast, Mrs. Clinton maintains her slight advantage in the popular vote, by a margin of 0.5%.  If it holds, this result marks the second time in 16 years that a Democratic nominee has won the popular vote, but lost the Presidency. The previous being Al Gore’s Presidential campaign loss to George W. Bush in 2000. Exhibit 1 below, taken from the New York Times, showcases the most recent map of election results, and also indicates the current estimate of the breakdown of the Electoral College.


Exhibit 1


This unexpected result, regardless of your affiliation, carries with it one indisputable effect – uncertainty. As we’ve mentioned several times, markets do not react well to uncertainty, and the immediate impacts have been indicative of this sentiment. The Mexican Peso, spurred by concerns over past inflammatory comments made by Mr. Trump in regards to their trading relationship and border, dove 11% in pre-market trading at its peak, settling to an 8% loss. The Canadian dollar also experienced weakness in the wake of the results, falling in value by approximately a cent relative to the USD. A ‘flight to safety’, which is common in times of uncertainty, has also been observed, with gold bullion prices surging 3%, and other safe haven assets and currencies also experiencing strength. Outlier and unexpected situations such as this are one of the main reasons we choose to include Precious Metal allocations in client portfolios. The Dow Jones Index also plunged almost 900 points at its peak, the max value allowable in pre-market trading and the largest decline experienced since 9/11. European, Japanese, and Chinese markets also all experienced weakness. That being said, upon conclusion of President-elect Trump’s victory speech, the market react seemed to soften, regaining part of the initial declines. Trump spoke of unity and vowed to be the ‘President for all Americans’. This seemed to mute the immediate market effects. Martin Van Vliet, Interest Rate Strategist of ING, noted that “the reactions are not as bad as I would’ve expected, but it is still early. It’s certainly not as dreadful as many people would have expected a few hours ago.” US Economist Paul Krugman was less optimistic, noting his belief that the US Market and economy “may never recover.” The possibility of such resultant market volatility was what drove us to raise cash in all accounts moving into the election; with this increased cash position, we plan to be patient, and await more information. There are many questions to be answered, and we believe that diligence and patience is the best course of action at this time.


The result itself was heavily reminiscent of the recent ‘Brexit’ vote, and parallels between the two situations were made at almost every opportunity. This election represented the emergence and vocal revolt of a group of individuals who were not included in the polls, are not interviewed on the media, and feel as if they have been wronged for a long time. This aspect of the election manifested itself in a number of key states, which served to usher Trump to victory. Ohio, one of the largest ‘swing states’ was a focus of the Trump campaign, which they were able to win, in the end. Michigan, which hasn’t been a ‘Red’ state since the Reagan years in the 80’s, was able to be flipped. Florida, who is republican-leaning, but also heavily categorized as an important swing state, was also in question going into the election, due to its large Hispanic and Latino populations. Trump was able to win there, also. New Hampshire, where Obama won by 8 points, North Carolina, and Pennsylvania were all other key states which Trump won in surprise fashion on his way to the presidency. Trump completely dominated the Mid-West, known as the ‘Rust Belt’, ostensibly on the back of his strong rhetoric towards repatriating manufacturing jobs.


The breakdown of voting demographics paints the picture of stark contrast, which leads us to believe that there will be further political uncertainty and volatility into the near future. Clinton dominated with women, Latino and African American voters, while Trump dominated with working class Caucasian voters.  Young ‘millennial’ voters were overwhelmingly in favour of Clinton.  As a matter of fact, SurveyMonkey reports that, if only millennials voted, Clinton would have won the election 504 – 23.


Despite the overwhelming amount of volatility, uncertainty and pessimism following last night’s election, we remain optimistic on the human and American spirit. We believe that human ingenuity and kindness will prevail, and that economic weakness and conflict will be limited to the short term, relative to a long-term investment horizon. That being said, in the near term, we will remain careful, erring to the side of safety and diligence. Capital preservation for our clients remains our number one priority.





MacNicol & Associates Asset Management Inc.

November 9th, 2016