2016 is a year of uncertainties. Investors are having to deal with collapsing oil prices, negative interest rates, the slowdown in China, not to forget the small matter of the European Referendum.
Added to this is the Presidential Election in the United States. This event could have a huge impact on the financial markets, particularly on US assets. This election is interesting as it is eroding many of the usual right/ left boundaries, there is no clear pro or anti-business candidate.
It is looking likely that Hillary Clinton will be the candidate for the Democrats and Donald Trump the Republican candidate. Early polls suggest that Clinton is the favoured overall candidate but the outcome remains uncertain.
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So what should investors be doing amidst this uncertainty?
There are four aspects individuals should keep in mind.
- Banking stocks are quite risky. Both Clinton and Trump have shown hostility towards the banks, this has proven popular with voters. The initial hope that 2016 would signal an end to banker bashing is looking unlikely.
- A cut in US debt is unlikely, a rally in Treasury bonds also looks unlikely if this is the case. Clinton seems to lean towards stimulating the US economy and Trump is looking to create jobs and boost growth. Neither have committed to a cut in public debt.
- Both Clinton and Trump are looking to invest in infrastructure. Infrastructure is a way to create jobs and boost the economy at a time when monetary policy is struggling to have an impact. Trump built his business with construction so this is an obvious choice for him.
- The US Dollar is likely to be quite volatile. Both parties are looking to protect trade. Whilst Clinton initially showed support for the Trans-Pacific Partnership, a treaty signed by 12 countries across the Pacific Ocean, her rhetoric on this has cooled. Trump has made many threats about trade protectionism. In both scenarios investors should expect currency volatility and add to this the impact of global political uncertainties.