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President Trump, Your Clients and the Markets

January 26, 2017

Now that Donald Trump has become president, and now that we have seen him in action for a number of months – both before and briefly since the inauguration – you are sure to continue to get client questions about what a Trump presidency means for the stock market and their portfolios.

If you aren’t getting these questions, you may want to bring up these issues yourself. Why? Because it’s inevitable, market fundamentals aside, that the president and his actions are going to have a significant impact on the financial markets this year and into the future. Better to get ahead of the discussion than have to answer unexpected telephone calls.

Politics aside, I think it’s fair to say most people would agree Donald Trump is going to be an unconventional president. Whether it be his focus on “the deal,” his seeming willingness to break with long-standing traditions (such as speaking by telephone with the President of Taiwan) or his tweeting at all hours of the day and night, the contrasts in style with former presidents are easy to see.

What is not so easy to determine yet is how successful he will be in implementing his agenda and how the markets will react. In the few days he has been in office he has begun to make good on a number of his campaign promises, and has met with a number of business and union leaders emphasizing his “business first” approach. Yet at the same time, unexpected reactions to issues such as the size of the crowd at the inauguration and potential voter fraud may have some people shaking their heads.

As such, I think you should prepare clients for a volatile 2017. The highs might be higher – as they were a few weeks ago with all of the major indices reaching records and more recently this week with the Nasdaq and S&P 500 reaching new highs – but the lows may also be lower.

Take for example the effect Trump has already had on an entire sector – biotechnology stocks – when he tweeted that drug prices were too high and on individual companies – Boeing and Lockheed Martin – when he tweeted that their government contracts were too expensive.

It seems inevitable that Trump’s tendency to challenge the status quo and stir the pot will have similar effects on the entire market.

Fundamentals will of course have a large role in how the market does as well. Will corporate profits continue to rebound? Will the price of oil stabilize?

How successful the new administration is in passing some of its legislative priorities, such as a large infrastructure spending bill, corporate tax reform and changes to Obamacare will also be important.

Taken together, you can see that a very long bull market (the second longest in history) has many obstacles facing it – both known and unknown. And we haven’t even talked about the global forces that might impact the markets, including Brexit and the rise of nationalist parties in Europe, or the threat of global terrorism.

So what are the bottom line implications of a Trump presidency for your clients? Should they change their investment strategies? Should they exit the market and wait and see what happens?

The answers to the last two questions are of course no, and it’s your job as an advisor to provide reassurance and levelheadedness. While some of the challenges facing the market may be new, the fact is there is always uncertainty facing the market. And history has shown that what works is a diversified portfolio individually customized for each client’s long-term wealth management goals.

In addition, it has been proven time and again that time in the market is more important than timing the markets. If clients ask you if they should get out of the market and sit things out until the outlook is clearer, ask them how they will know when to get back into the market. Because, in fact, the outlook will never be crystal clear and there will probably never be a time that screams “get back into the market.”

Let’s not forget the market began last year in a month-long free-fall that was reversed before the end of the first quarter.

2017 is shaping up to be an interesting and volatile year for sure. As long as clients are prepared for this volatility and recognize that it is being caused by short-term events rather than longer-term seismic shifts in the fundamentals underpinning the market, they should be able to sleep better and you will have done your job.