CPC Investment Quarterly
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Quarter 4 2016 Investment Quarterly
A post-election case study on how the markets price securities.
If you strip away the politics and emotions from the recent election of Donald Trump as the 45th president of the United States of America, you are left with an intriguing case study of how markets price securities. For months, financial news experts and the markets themselves were touting a disaster scenario if Trump were to win the presidency. On election night, the Dow Jones futures market dropped 750 points and the S&P circuit breakers tripped to halt trading after falling more than 3%. Yet, the next morning markets pushed higher and have continued to do so. What led to this reversal and why were markets fearful of a Trump presidency in the first place?
The answer is that market participants are seeking to price in what will likely result from a Trump Presidency. Market participants are discounting isolationist policies, such as "ripping up NAFTA", as unlikely. This type of policy may be negative for markets as reductions in trade would harm most businesses earnings. However, markets are taking tax reform for individuals and corporations as a big positive for company earnings. Markets are expecting Trump's tax agenda to likely pass with a Republican majority in the legislature and thus, should be priced into securities.
This month, CPC Investment Committee member Adele Gipson explored the implications of Trump's fiscal agenda. We invite you to click here to view her video.
As with any new Administration, our team at CPC will stay on top of legislative changes that could impact the economy, markets, and our clients' tax situation and adapt accordingly.
As always, if you have any questions we can be reached at 404-892-1995.
The CPC Investment Committee
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