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How Should Investors React to a President Trump?

The election is over. Market futures were down almost 700 points as soon as the news hit the wires. But soon after, the losses were looking closer to down 300 points – or 2 %. As of the time of this writing, the stock market is up. Will the market deteriorate? Will it close higher? I don’t know yet. But clearly, we are in a highly volatile situation right now and it would probably be unprofitable to try to predict that outcome

Chances are good that you are either elated or depressed by the results of this election. I might be exaggerating a little here, but emotions are running very high – as they have been for the entire election cycle. As a financial advisor, I’m neither happy nor sad about Donald Trump being elected. My job is to try to make sense of what’s happening as it relates to your investments and help you make smart investment decisions. So, let’s get to it. (For related reading, see: Don't Worry About Your Portfolio This Election.)

The market could end up anywhere today. But what does this mean going forward? Nothing. Take a look at what happened after Britain voted to leave the EU. On the day before the vote, the market climbed because the gurus expected a different result:

As soon as the final verdict was in, the markets caved in – for about a week (see chart above). But then they came it right back (see chart below). All those highly educated, highly-paid talking heads who were so sure the world economies would crash as a result of the referendum were clearly dead wrong.  

I’m not saying that the market will end up in the red today for sure. Or that the market will come right back, today, tomorrow, or next week. I don’t know – and neither does anyone else.

I do know that interest rates, which were likely to start increasing next month, may not be raised. I know that short-term markets react to surprises – and this was a big surprise. But I also know that long-term investments are impacted more by earnings – not single, solitary events. And how will earnings be impacted? Business is impacted by what government does. But it will take a long time to figure out what the new government may or may not do.

That’s why the Brexit market drop was short-lived. Because once the votes were counted, nothing really changed. And people realized it would take a very long time before anything substantial would shift – and even longer before the real impact of those changes would impact business.

Getting back to our election. What will happen with healthcare? How about taxes? How about trade agreements? How will all this impact corporate earnings? It’s impossible to know because none of this has happened yet. We know what President-Elect Donald Trump said as a candidate, but do we know what he wants to do as President? No. Do we know what Congress will support? No.

Regardless of how you voted or how you feel about the result, I’m suggesting we put aside our feelings and wait to see what the market tells us about what’s yet to come. That’s really the only way to make a non-speculative call. And that’s what I’m doing. (For more, see: Democrats, Republicans and Your Investment Portfolio.)