Thursday, November 26, 2020

Ask The CFP®Practitioner: What’s Next?

 

 

Darcie Guerin

darcie.guerin@raymondjames.com

“Begin challenging your own assumptions. Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won’t come in.”  ~Alan Alda 

Question: What are your thoughts on how the Trump presidency will influence the economy and financial markets?

Answer: Just when you think there aren’t any surprises left in the world, the Chicago Cubs win the World Series, Britain votes to leave the European Union, Trump becomes our president-elect and financial markets respond by reaching new highs. While it’s difficult to say with any degree of certainty what will happen in the future, what we can do is evaluate what we do know today.

Trump has little political experience making it difficult to predict future behavior. His comments over the past seventeen months suggest confidence, arrogance, and a disinterest in political correctness. Meanwhile he’s committed to creating a favorable environment for job growth and employment. Trump has indicated he will focus on legal immigration and enforce the E-Verify system ensuring that workers are here legally. He’d also like to limit illegal and undocumented immigration from countries whose policies are hostile towards Western civilization.

Moves toward protectionism could be seen via tariffs and changes in trade agreements. It’s true that China does steal our intellectual property, and maybe threatening protectionism will get them to stop this, as well as other detrimental practices. But protectionism and import tariffs would also raise prices for consumers, while also upsetting our trading partners.

This could be offset by decreases in government regulation for many U.S. industries with policies designed to create jobs, increase growth, and incomes. Market behavior to date shows that this is being received in a positive manner. Regarding health care, there is talk that the Department of Health and Human Services may want to redesign the Affordable Care Act to look more like catastrophic insurance with add-ons, making it more cost-effective for consumers and insurance companies.

Trump backs tax repatriation, which encourages U.S. corporations to bring home the $2.6 trillion held overseas (Reuters). Currently the U.S. doesn’t tax foreign holdings of U.S. companies if the money stays overseas. If those funds were brought back to the U.S. today the tax would be roughly 35%; Trump proposes a significantly lower 10% rate. The expectation is that lower tax rates will stimulate job creation and investment. An infusion of corporate cash into the U.S. economy would have a multiplier effect on economic growth. This could lead to gradual and

natural increases in interest rates. Higher interest rates benefit savers. He is also in favor of lower overall individual and corporate tax rates. The goal of the plan is to resuscitate and revitalize growth in our economy, create jobs and provide overall optimism.

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First Things First 

Trump’s statements were frequently vague, ambiguous and often polarizing. This is why the choices he makes about who will

 

 

surround him during his Presidency are so important. It will probably take time for Trump to build his team.

Our political system is built on a foundation of checks and balances to assure the separation of power between the legislative, judicial and executive branches of government. Many concerns may be alleviated as we watch this transition and find out who Trump will name as cabinet personnel and close advisors. Meanwhile, his lack of involvement and familiarity with Washington, D.C., viewed by many as a liability, could actually be an asset.

Whether your candidate won or lost, the sun will come up tomorrow. Secretary Clinton, President Obama and President-elect Trump have all pledged to work together during this changeover with an emphasis on unity and hope.

We do know that after the 1996 Clinton election and the 1972 Nixon election stocks reached new highs just as they did following the Trump win. According to Bloomberg, in the 22 elections since 1928, the markets have fallen fifteen times the day after polls closed for an average loss of 1.8%. Over the next twelve months stocks moved to close higher in nine of those 22 instances.

Obviously it’s difficult to say, “Here’s what’s going to happen.” What we do know is that markets continue to climb the “Wall of Worry” following the election. This solidifies the statement that it’s recommended to align investment objectives with your specific needs, goals and comfort levels rather than changing strategies based on election results. Of course there are times when it may be appropriate to adjust exposure and rebalance your allocation between stocks, bonds, cash and other investments based on long-term fundamentals, valuations, interest rates and individual factors. Stocks and markets go up and down, it’s what they do. Know what you own, why you own it, stay focused and plan accordingly.

There is no assurance any of the trends mentioned will continue or any forecasts will occur. Investing involves risks including the possible loss of capital. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk including the possible loss of capital. The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment decision. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041 or darcie.guerin@raymondjames.com. Website: www.raymondjames.com/Darcie.

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