We are watching the conclusion of Brexit 2.0 in bemusement as markets sink to circuit breaker thresholds. Although the market will be decidedly risk-off tomorrow and perhaps the next little while, there are plenty of opportunities to take advantage of in the coming weeks as the dust settles.
Lamentably, it is too late to ride on the flight to safety in yen, francs and gold, but a Trump victory has positive long-term implications for much of Corporate America. Trump has long campaigned on a platform of slashing corporate taxes and incentivizing companies to create domestic jobs. He is also determined to repatriate stranded cash for companies being pragmatic with international differences in tax law.
With the support of a Republican Senate, many of Trump’s initiatives have a good chance of going through, which means a lower tax burden, higher access to capital for companies with offshore cash, and other fiscal stimulus through policy. All of these are positive for earnings, and equities poised to benefit will be available cheaply in the next few weeks.
Additionally, Trump is likely to dismiss environmental concerns for large industrial projects, leading to faster approvals for pipelines, power generation and infrastructure. Right now, the way the dollar will go is inconclusive (without raising taxes, the debt problem in America needs to be addressed), but presumably it will fall versus a global basket eventually (given the debt problem), further boosting earnings.
Accordingly, we can see upside in:
- Corporates in general – buy S&P or NASDAQ after the dip
- Companies with stranded cash – Tech firms, especially AAPL
- Energy infrastructure companies as opposed to energy producers (they are still tied too closely to the price of oil, which is impacted by factors other than the election)
We are curious to see how closely Trump adheres to his protectionist and hawkish tone pre-election; cutting trade would certainly hurt America, but if he is less sincere about this part of his platform we could see corporates with foreign operations in strong emerging markets beginning to outperform again.
Somewhat ironic, but if Trump does prove to be the catalyst to make America great again as a result of the aforementioned, we could see a rise in education and a fall in the disenfranchised populace that would be most likely to throw their weight behind a demagogue (Trump). All in all, a bluesky Trump victory could result in fewer Trump voters going forward.
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