After one of the most spiteful and divisive election campaigns ever, Donald Trump will now be the 45th president. We are not interested in the politics or rhetoric that accompanies all such events. As investment professionals, we only care about what this will mean to the US economy and, in particular, to the S&P 500 index, which contains the shares of the top 500 US listed corporations.
There is no doubt that Donald Trump has huge amounts of business experience, mostly in real estate. Whilst people continue to question his net worth and business acumen, Trump surely has a very good understanding of how businesses succeed and fail.
Whatever the rhetoric of the election, we feel that Trump is unlikely to knowingly damage American business interests, especially being a Republican, a party whose interests are closely aligned to US big business.
However, running a country will be quite different to running a real estate empire. We think it’s best to look at the Republican Party’s policies to see how US business is likely to fare under President Trump.
The Republican Party have an extensive “Party Platform 2016”, which you can download here.
If you read through its sixty six pages you’ll see some encouragement for the big US businesses that are in the S&P500, but the supporting policies are mixed. We picked out a few items that are likely to impact big business:
- “Wherever tax rates penalise thrift or discourage investment, they must be lowered.” – The Republicans intend to completely overhaul the USA tax code and lower corporate tax rates. This is a great idea, the USA tax code is highly complex and uncompetitive compared to most other Western developed economies.
- “A Republican president will insist on parity in trade and stand ready to implement countervailing duties if other countries refuse to cooperate.” – Good principles but difficult to implement and more likely to lead to import barriers and that may cause other countries to retaliate – This is unlikely to be helpful to the expansion of world trade, we think sound enforcement of existing trade agreements is the way to go.
- “Federal employees receive extraordinary pension benefits and vacation time wildly out of line with those of the private sector.” – The Republicans intend to bring government employee benefits in line with the private sector, an excellent idea that other governments should follow. This should reduce the tax burden and help America’s huge fiscal deficit.
- “We are determined to make regulations minimally intrusive, confined to their legal mandate, and respectful toward the creation of new and small businesses.” – Sensibly reducing regulation and the size of the government is probably a good idea, this will reduce the bureaucratic burden on business, whilst also reducing government expenditure, therefore enabling the possibility to reduce taxes.
We state again” we are not interested in the politics – only the impact on the US/World economy! We think that the kind of policies listed above, and the many others listed in the Party Platform, will have a mixed impact on the businesses in the S&P500.
The Rise of the S&P500.
Since Barack Obama became the US president on 20 January 2009, the S&P has risen from 943 to just over 2000, a 100+% gain. However President Obama took over in the depths of the Great Recession, when values were low everywhere, and it’s as well to remember that since the S&P500 was started in 1923, the long term trend has been ever upward.
There are clearly positive and negatives to Donald Trump becoming the new US president, but it’s far from clear what the overall impact on the S&P500 will be. However, as the world’s largest economy, the USA is hugely successful and that will continue. It will be those investors who can pick out new, successful sectors or undervalued companies who will gain the riches from the S&P500! This is a challenge for private, expat, investors, but we believe we have a team with the experience to help you win!