US Election: Markets don’t like uncertainty (By Mirova)

When it became clear that Donald Trump would win the US presidential election, markets initially turned very red, ironically the color of the Republican Party. The day after the election in the US, futures were down about 4%, the dollar lost about 2% and the oil price lost about 4%. Gold, in our opinion, was the only winner… Markets don't like uncertainty and while there will certainly be winners and losers over the short term, it is too soon to determine any long-term effect. The price of risk is certainly going up, which we believe explained the majority of the fall.

Today, markets seem to be quickly adjusting to the new situation. Prices through the morning have been stabilizing and with the exception of Asia and Mexico, we feel that price moves of most major indices look like any normal day. In our opinion, there is no doubt that the softer tone Trump used in his victory speech compared to the language during his campaign has eased market concerns a bit, as well as the fact that the republicans also won the elections for the House of Representatives and the Senate which, we believe should technically lead to quicker political decision making, actually reducing uncertainty somewhat.

Like with Brexit, the nation is very divided though with rural US voting for Trump, cities for Clinton. Blue collar for Trump, white collar for Clinton. We believe the result so far also shows that the way predictions were made, no longer works, which may indicate (as with Brexit) a major shift in society. While this shift has been happening for a while, it has become a lot more visible lately. We believe long term, structural and sustainable solutions are needed. Globalisation is good as it leads to quicker development and lower poverty in emerging countries but we should manage the impact on local (developed market) manufacturing and employment a lot better. Urbanisation is a positive trend (better access to education, health care and employment, less negative impact on climate change) but we cannot forget the people living in the countryside. More than ever, we believe sustainability issues are driving the result of the elections, albeit potentially not with the expected result.

Furthermore, no matter who wins the elections, ironically other sustainability matters have been discussed more than before during the campaign, and are likely to remain important topics: equal rights, fair treatment of women, tax evasion and fair tax contributions, general ethics.

Those observations strengthen our belief that thematic and sustainable investing will continue to grow in importance.

Written by Jens Peers, CFA, CIO of Mirova