It’s Brexit all over again — but now is not the time to panic

Just as the world’s equity markets seemed to have recovered from Brexit, they’ve now been rocked by another unexpected event — the election of Donald Trump as the next president of the United States. 

Trump’s election has made life difficult for investors insomuch as some companies will be more affected by his presidency than others. However, the same would have been true if Hillary had won the vote, although it’s likely the wider impact on markets would have been more nuanced. 

That being said, markets are already recovering from their initial Trump enforced losses. At time of writing the FTSE 100 is actually in positive territory. In overnight trading, the index had dropped by as much as 400 points, and the Dow Jones Industrial Average slumped by more than 700 points. 

So it seems that the markets are repeating the Brexit playbook. The sudden sell-off has been followed by a steady grind higher, albeit in a my shorter time-frame. 

The Brexit playbook

If the Brexit volatility taught us anything, it’s that long-term investors should avoid any knee-jerk reactions after such a big market-moving event. And it’s more than likely that the same approach will be helpful this time around. 

Many investors and analysts are worried about the direction Trump will take in office. However, there’s no reason to make any sudden investment decisions. Inauguration day is not until 20 January, so for the next two-and-a-half months investors will have time to digest what a Trump presidency actually means for the US and the rest of the world, and then make an informed decision. 

Look to the long-term

For long-term investors, it might be best to do nothing over the next few months. Over the past 100 years, the stock market has produced an average annual return of 6% per annum, despite there being two world wars,  a cold war, a severe global depression, and multiple recessions during this period. Trump’s election may set markets back in the short term, but for the long-term the trend is clear. Furthermore, even though markets are selling off today, there’s a clear disconnect between what’s being sold and what will be affected by Trump. 

For example, shares in Standard Life and Tesco traded down by as much as 4% in early deals today, but Trump’s presidency is unlikely to have any impact on the demand for UK pensions or food. Defensive domestic equities like these are the perfect way to play the Trump effect. Shares in these defensive champions may suffer in the near-term but over the long-term, solid fundamentals will drag the shares higher. International defensives such as Unilever will also be unaffected by Trump and provide the perfect safe-haven for safe haven seeking investors. 

The bottom line 

All in all, Trump’s election to the White House may be a surprise for many, but there’s no need for investors to panic. Long-term investors should turn off their screens for the day and look for bargains if any emerge.