2016 Election Results

The financial markets embraced a Trump victory, sending stock prices to higher levels following a nine day consecutive decline in anticipation of uncertain election results.

U.S. Treasury yields rose dramatically with the expectation that a Trump presidency along with a Republican controlled Congress will inevitably ramp up government spending in order to boost economic growth. During the campaign, Trump was very critical of the Federal Reserve not acting to raise rates soon enough, insinuating political influence.

The Republican win in the Senate and House along with a Republican president means that legislation and laws will flow much more quickly through Congress, rather than running into stalemates as with a divided Congress.

Trump and many republicans have been calling for a rollback of various laws and regulations put in place during the Obama administration. A focal regulatory act is the Dodd-Frank Act, put in place following the financial crisis of 2008/2009, creating immense regulatory costs for the banking sector.

Ratings agency Standard & Poor’s affirmed the investment-grade ‘AA+/A-1+’ rating of U.S. government debt, a day after the presidential election, while maintaining its stable outlook. The agency stated that it will “assume the longstanding institutional strengths and robust checks and balances of the U.S. that will support policy execution in a Trump administration, despite the president-elect’s lack of experience in public office, which raises uncertainty on policy proposals.”

The following are expected to be affected by policies and regulations set into place by a Trump presidency and the Republican controlled House & Senate:

Fiduciary Rule

During the election Trump did present the idea of perhaps reversing the fiduciary standard that has just recently been implemented by the department of labor.

Tax cuts for individuals and corporations

Both Trump and the house Republicans have been pushing for tax reform plans that would lower individual and corporate tax rates. Trump has proposed reducing the corporate tax rate to 15% from the current 35%.

Health care reform including the possible dismantling of Obamacare

The modification if not dismantling of Obamacare was a key theme with Trump’s campaign.

Trade and exports

Foreign countries with trade agreements in place with the United States are concerned that Trump’s presidential victory might lead to an upheaval of existing trade and economic arrangements. The North American Free Trade Agreement (NAFTA) has been a primary target of Trump.

Infrastructure

A Trump presidency, as well as a Republican controlled Congress, has set the stage for increased government spending as well as increased spending on infrastructure starting in 2017.

Defense contractors

Historically, Republican leadership has usually been supportive of defense spending.

Coal industry

During his campaign, Trump voiced his support for the U.S. coal industry and China’s pursuit of the industry.

Oil and natural gas drillers

During the campaign, Trump reiterated his support for the oil and natural gas industry, perhaps curtailing various regulations inhibiting further growth and industry profitably.

Pharmaceuticals & Biotech

Hindered by Obamacare and recent regulations, Trump has proposed scaling back pricing regulations.

Banking Industry

Should Trump and the Republican controlled Congress decide to alleviate current regulations such as Dodd-Frank, the regulatory environment would become less inhibited for U.S. Banks to generate profits and loan money to consumers. A rising interest rate environment is always beneficial for banks.

Market performance following presidential elections have varied over the decades, however, Trump’s affect on the S&P 500 Index of 1.11% was one of the best for both Democratic and Republican presidential victories ever. Obama’s win in 2008 saw the largest drop of -5.27%, while Reagan’s victory in 1980 saw the largest gain of 1.77%.

Sources: S&P, Moody’s, Reuters. Bloomberg

 

The Evolution of Bitcoin – Market Fact

An emerging form of digital currency has received tremendous media coverage this past month, Bitcoin, which is essentially virtual money that is traded digitally by exchanges. Bitcoins can only be purchased and sold with legitimate currency, such as dollars or euros, making it available worldwide. The total estimated value of Bitcoins worldwide as of May 30, 2017, is over 36 billion dollars.

Bitcoins exist as software, not physical currency, and are not regulated by any country or banking authority. Even though U.S. Senate hearings disclosed that Bitcoin could be a means of exchange, it gave no assurance that it would actually become an accepted medium of exchange. Government regulations would need to be created and then enforced in order for Bitcoin to become accepted by other government entities. The currency can be traded without being tracked, thus raising the potential for illicit activity, such as involving weapons, drugs, and prostitution. Bitcoins are not illegal, but it is also not legally recognized by governments as a currency.

Since the beginning of 2017, the total market value of Bitcoins have risen over 20 billion dollars, more than doubling since January 1 2017.

Some believe that the price appreciation of Bitcoin has been a result of speculation and hasn’t been used as a store of value or as a medium of exchange to any extent. Some compare Bitcoin to the tulip craze in Holland of 1637, when speculators pushed the price of tulip bulbs to incredible levels, followed then by a collapse in the tulip bulb market.

Bitcoin has surged on speculation that perhaps one day digital money will eventually become a legitimate global currency and even replacing currencies from certain countries.

Bitcoins are mined by powerful computers that calculate complex, mathematical functions. Total Bitcoin quantity is capped at 21 million and currently there are about 12 million that exist worldwide. Circulating physical coins only represent Bitcoin and are not a store of value as is legitimate currency.

The growing mobile payment industry could be a big benefactor to the acceptance of Bitcoin as new and creative applications are being devised to accept digital currency. Bitcoin transactions are very popular among mobile users, where rather than using a credit card or cash to make a purchase, all you’d need is your phone.

Bitcoins emerged in 2008 designed by a programmer or group of programmers under the name of Nakamoto, whose real identity remains unknown. New Bitcoins can only be created by solving complex math problems embedded in the currency keeping total growth limited.

In 2014, the value of Bitcoins fell by over fifty percent following remarks by China and Norway to not recognize the digital currency as legal tender. The government of Norway ruled that Bitcoin does not qualify as real currency but rather qualifies as an asset, producing taxable capital gains. Norway said that Bitcoins don’t fall under the normal definition of money or currency.

More and more nations have been taking an official stance as the popularity of Bitcoins has evolved. The European Banking Authority has warned about the risks of trading digital money and being subject to losses where consumers are not protected by any government entity or authority.

As digital currency evolves, some believe that it will eventually be accepted as a legitimate currency. But for the time being, others believe that its time hasn’t arrived yet. Various studies have recently emerged with different opinions, such as a Stern School of Business study conducted by David Yermack, which concluded that Bitcoin behaves more like a speculative investment than a currency and has no currency attributes at all.

Sources: Bloomberg, Reuters

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.