Commentary

Looking Forward Post-Election, Our Perspectives

November 11, 2016

We are now a few days removed from the immediate shock of an election outcome that caught many people off-guard. News networks, national polls, and Nate Silver’s statistical modeling were all predicting a Clinton victory, and yet the opposite happened. Another projection that held wide consensus was that a Donald Trump victory would result in an immediate stock market decline, and yet the opposite has happened thus far. What we’ve seen is more of a sector rotation highlighting the market’s bifurcated expectations for which industries will be boosted by new policy and which will face greater pressure.

Community is a cornerstone of our firm. We know that many members of our community, clients and friends alike, were very emotionally invested in this campaign process that’s been historic not only because of the candidates and issues but also because of the way we engage with 24/7 consumption of media and information. Many people are feeling angry, confused, and frightened, while others are feeling optimistic or relieved. We respect all these emotions. It’s part of the process. We will continue to do our part to build a stronger local community and help our clients and friends support the causes that are important to their families.

We at North Berkeley understand that we are tasked with putting our emotions to the side and looking at this outcome amidst the entire economic landscape and continuing to steward portfolios for our clients. We have been entrusted to manage the assets of many wonderful families for long-term growth and preservation. That means managing through periods of optimism and through periods of heightened uncertainty, through both Democratic and Republican leadership, and through recessions and recoveries. We’ve seen these phases before and expect to them again.

While a Trump presidency still brings a high degree of uncertainty we can predict to some extent how various policies might impact sectors of the market. Here are some initial outlooks:

Infrastructure: Rebuilding America’s aging infrastructure has been a primary objective of both parties during the campaign. We expect industrial firms and builders to benefit from this increase in spending, by both government and private sector with governmental support.

Healthcare: If the new administration is successful in attacking the Affordable Care Act then insurers and healthcare stocks could see negative impacts, but much would depend on what solutions are being presented to replace the ACA. It will be messy to say the least. Other healthcare stocks in biotech and pharmaceuticals will likely see a positive impact from less regulatory pressure.

Energy: The new administration will put more focus on fossil fuel production in the name of job protection, and will put less emphasis on renewable energy and climate protection. Certain companies will benefit from less regulation, but the price of oil or natural gas will still be set by the global marketplace. We don’t see coal as a resurgent industry despite the rhetoric, but it’s decline could be slowed by new policy.

Financials: Deregulation, in particular a partial or full repeal of Dodd-Frank, would mean strong tailwind for financials. These companies will also be aided by any increase in interest rates.

Tax Reform: Lowering taxes will be a primary agenda item for this administration both on individual tax rates (lower highest rate to 33%) as well the corporate tax rate (lower highest rate to 15%). Another focus will be helping US companies repatriate money that’s held offshore. We expect this would have a positive impact on the economy in the short term.

Inflation: The combination of higher government spending on infrastructure and potential tariffs or protectionist trade policy could lead to higher inflation. We expect the national debt will rise and deficit spending will persist particularly if accompanied by lower tax revenues.

As we move forward we will continue to monitor the global economic landscape and expect that innovative companies with strong leadership will keep doing business in the United States and around the world. We remain focused on the long-term, while seeking to understand where we are today. Above all, we’ll continue to do our best work to steward the assets we’ve been trusted with and plan in partnership with our clients for the future.

If you have any questions or would like to discuss your situation in more depth, please be in touch with us. We look forward to the long road of our continued work together.