What Money Managers Expect from a Trump Victory

If today's market volatility is any indication, there are plenty of questions about what President-elect Donald Trump in the Oval Office and a GOP-controlled Congress mean for stocks, bonds, and other assets.

Here's what some of the major asset managers have to say.

American Funds: Five Ways President-Elect Donald Trump Could Move Markets American Funds notes that with a Republican majority in Congress, Trump may very well enact much of his economic agenda. "Investors now spooked by Trump's election may find themselves surprised next summer by the economic stimulus Trump's Washington enacts," writes Matt Miller, policy and communications advisor at American Funds.

Miller details five key areas in which policy decisions could have an economic impact--and ultimately, an impact on equity and bond markets, too. Among them: increased infrastructure spending, lower tax rates for corporations and workers, considerable changes to trade arrangements, a repeal and rebrand of the Affordable Care Act, and defense spending increases.

"In the end, a Trump administration means a significant shift in Washington policy for at least the next four years," concludes Miller. "That could worry markets initially as they wait to see how a Trump presidency actually takes shape."

Blackrock: U.S. Election: Trump Win Like others here, Blackrock expects the Trump victory to bring market and policy uncertainty in the short term. Specifically, Blackrock expects a "risk-off" sentiment to knock down stocks and corporate bonds, while "safe havens" like gold and the Japanese yen stand to benefit. And while U.S. Treasuries might benefit out of the box, Blackrock notes that they may come under pressure if Trump's policies are viewed as deficit widening. It expects emerging market assets to sell off short-term due to their reliance on trade and investor sentiment.

Perhaps most notably, Blackrock says the ensuing market volatility may lead the Federal Reserve to hold rates steady in December--and puts the future path of rate increases into question.

What does Blackrock see as benefiting, either short- or long-term? Healthcare stocks may rebound due to perceptions that a Trump administration would put less pressure on companies to reduce drug prices. Blackrock also thinks financial stocks could outperform midterm amid higher inflation and steeper yield curves; specifically, U.S. regional banks are a bright spot.

Fidelity: Republicans Take Washington Fidelity, too, expects a post-election pullback in the markets. According to Fidelity, since 1980, the stock market has dropped about two-thirds of the time the week after a presidential election. Three months later, the market has been up two thirds of the time, with a median gain of 5.7%. The upshot is, of course, to stick with your long-term plan through the volatility.

That said, Fidelity's experts note that there are many unknowns regarding what a Trump presidency will accomplish, but they do expect tax and regulatory reform. Bill Irving, manager of Gold-rated

Ramin Arani, who manages the Silver-rated

Franklin Templeton: America Decides: A Vote for Change Ed Perks, chief investment officer for Franklin Templeton Equity, notes that the health of the U.S. economy, corporate earnings and dividend growth, and consumer employment and spending trends should drive future market returns. "However, it's important to recognize that Trump's trade agenda could alter the path to growth for multinational corporations, casting doubt into many investors' minds about the sustainability of market resiliency," he adds. Further, Perks notes that legislative actions are unlikely to live up to the negative expectations priced into drug stocks today. And although he expects a Trump administration to be supportive of financials, the sector could be at risk from the broader economic destabilization that could result from his proposed trade policies.

Christopher Molumphy, chief investment officer for Franklin Templeton Fixed Income Group, says fundamentals typically drive the long-term performance of fixed-income markets. While he thinks market volatility could delay a December rate hike, positive fundamentals should give the Fed confidence to continue tightening over time.

Northern Trust: U.S. Election: What You Need to Know Northern Trust's CIO for Wealth Management, Katie Nixon, simply says, keep calm and carry on: "Looking at history, we see little correlation between who sits in the White House and equity market returns. We do, however, recognize that this result is decidedly out of consensus and unexpected. We urge investors to keep a focus on the long term and avoid the urge to react to short-term news."

That said, the equity markets didn't price in a Trump victory, so investors should expect a period of heightened market volatility worldwide, with U.S. multinationals being especially vulnerable. And if volatility persists during the next several weeks, the Fed will likely hold off on raising interest rates. Lastly, the combination of a Republican win in the White House and Congress bodes well for tax reform, including the possible repeal of the 3.8% net investment income tax and the gift and estate taxes.

T. Rowe Price: Uncertain Investment Outlook Comes With President-Elect Trump T. Rowe Price sees the Trump presidency as a wild card that could create some fear among investors and lead to a downturn in global markets--but over the long term, the U.S. system of checks and balances may reassure investors.

The consensus among T. Rowe Price's economic and investment experts is that Trump’s tax-cut and trade plans could drive up the budget deficit and lower the economic growth rate. Some of Trump’s campaign proposals--particularly corporate tax cuts, looser regulations, and increased federal outlays for defense and infrastructure--"could be positive, a marginal fiscal stimulus for the U.S. economy in the short term," says Alan Levenson, T. Rowe Price's chief U.S. economist. "But that could lead to bigger deficits than otherwise and potentially higher interest rates in the absence of economic strength."

Some T. Rowe Price managers say Trump's plans could be favorable to stocks in highly regulated industries, such as healthcare, energy, financials, and industrials--at least in the near term. On the fixed-income side, T. Rowe expects short-term rates to go lower as investors flock to the safe haven of short Treasuries. "There could be pressure for rates to go higher as investors digest the deficit spending pushed by Mr. Trump," says Andrew McCormick, head of T. Rowe Price's taxable bond team. Market volatility could lead the Federal Reserve stall their path toward tightening. "When faced with volatility, central banks tend to kick the ball further into the long grass--so they may end and maybe deepen their easing cycles," says Quentin Fitzsimmons, a member of T. Rowe Price’s global bond team.

Vanguard: Worried About the Election's Impact On Your Portfolio? Vanguard addresses market concerns about the new president elect with a study showing that markets are nonpartisan over the long term. "The markets don't like uncertainty, and presidential elections, by definition, add another layer of uncertainty," said Jonathan Lemco, a senior strategist in Vanguard Investment Strategy Group and former professor of political science at Johns Hopkins University. Lemco also notes that the volatility is often short-lived. And Vanguard research going back to 1853 shows that stock and bond market returns are about the same no matter which party controls the White House.

"Once you take into account volatility, the returns of the stock market under Democratic and Republican administrations are virtually indistinguishable," Lemco said. "This is one more reason why investors should focus on more meaningful factors when it comes to their portfolios, such as diversification and controlling costs."

More Perspectives:

Nuveen 2016 Election Recap: What The Results Mean for Investors Schwab: Trump Wins: What Happens Now?