What else is there to discuss?  Presently, there is no item of news more pressing or prevalent then the results of last week’s presidential election.  This month’s commentary will be focused on the market implications of that event and the extent to which it should inform our allocation of client funds.  We recognize that some who are reading this feel genuinely relieved and hopeful at the result, while others feel pronounced grief and fear.  It is beyond the scope of this work to address all aspects of the implications of the new regime.  Our focus remains on the market and economic implications and we seek to understand those forces as dispassionately and objectively as we can.  We’ll discuss what we expected, what we didn’t and how we move forward given the events that are unfolding.

Going into the election, we felt a strong sense that the media and professional pollsters were vastly underestimating the Trump campaign with an eerily similar tone in which the media underestimated the Brexit vote earlier this year.  This sense proved to be correct as both the Brexit vote and the election were a loud condemnation of the status quo.  This is  more or less what we expected.

In the wake of that, we also expected the stock market to be down dramatically and for precious metals and bonds to rally in the wake of an uncertain development and an upending of the system as we know it.  To date, this has not occurred.  Stocks sold off sharply in the pre-market hours and then closed up in the days following the election.  Presently, stocks are selling off again and demonstrating difficulty in breaking out to new highs.  Precious metals have sold off as the dollar strengthened as have bonds.  In the short term, we did not anticipate these moves but they do not change our overarching bearishness on US equities in the short term nor our bullishness in the metals longer term.  Markets can be magnificent at providing information as to the truth of an asset’s value.  Likewise, markets can be horrible at focusing on anything other than the latest item of news, in this case the headline would read “Trump Wins, Sun Still Rises.”  In short, we believe there is a strange relief in having the election over, regardless of the result,  that has bled over into short term bullishness in equities that appears difficult to sustain.

Going forward, we encourage cautious ownership of equities and the use of hedges on those positions where appropriate.  Stocks can indeed go higher but the likelihood of that was previously diminishing and having Trump as President-elect doesn’t automatically change the reality for our economy overnight.  Bonds are likely a poor investment overall as has been the case for some time.  A combination of rising rates and inflation driven by fiscal stimulus will make it more difficult to earn a reasonable return in the fixed income asset class.  Precious metals should benefit from inflationary policy and we remain owners of gold and silver in certain investment models.  What we are certain of is uncertainty.  Those that would point to the inevitable positives or negatives of Trump’s budding economic proposals are dismissing a great many variables that can impact, for better or worse, any economic policy initiative assuming that initiative can be put in place as originally conceived in the first place.  The future is more uncertain today than it was a week ago and it remains to be seen if that future is good or bad from an economic and market perspective.  As such, diversification is key.