Since the US election, the S&P 500 has risen by 2.2%. A key reason for this is increased optimism regarding the impact of Donald Trump’s economic policies on US GDP growth. Clearly, this puts to one side his social and politics views, but the reality is that Trump’s promise to reduce taxation and spend more on infrastructure could provide the world economy with a major boost. This could lift share prices including those in the UK and help you to retire early.
Clearly, in the short run there is likely to be a huge amount of uncertainty. Donald Trump does not enter office for another two months, but once he does it would be unsurprising for share prices to come under pressure. After all, a new President causes investors to become nervous even when there is likely to be modest policy change from the previous President’s administration.
In Trump’s case, he is seeking to overturn a number of policies from the previous administration and launch a radical economic policy which is unlikely to encounter all that much opposition since both Houses have a Republican majority. Therefore, the potential for rapid change in the US economic outlook is very real, which could unsettle investors in the first part of 2017.
While a high level of volatility in the first part of 2017 may be somewhat uncomfortable, it could prove to be a stunning buying opportunity for long term investors. High quality stocks with sound balance sheets and bright long term futures may trade on low valuations. This could provide the chance to buy in and benefit from the potential for a significant upward rerating over the coming years.
Such upward reratings are very much on the cards thanks to Trump’s economic policies. A US government which spends heavily on infrastructure and defence could deliver a much higher GDP growth rate. The US unemployment rate could fall even further following a period of improved numbers. Furthermore, Trump’s promise to reduce taxes could lead to greater investment by businesses as well as higher consumer spending as workers have higher disposable incomes.
Certainly, Trump’s policies could lead to higher inflation and his views on protectionism may prove troubling for investors. However, so far these views have been rather more muted than during the campaign and may not come to fruition. Similarly, the Federal Reserve may raise interest rates to a sufficient level in order to keep the damaging effects of inflation under control.
Therefore, while Trump may not be popular among half of the US population and among investors across the world, he could have a positive impact on share prices in the medium term. Before then, uncertainty could create a buying opportunity, providing investors with an opportunity to buy low and then sell high further down the line. As such, Trump’s Presidency could boost your portfolio performance and help you to retire early.