Election 2016 commentary: How markets may fare in a Trump administration

Note: At Azzad, we do not position our portfolios in anticipation of any singular event. Rather, we focus on factors that we believe allow our clients to increase their chances for a positive investment outcome across all market environments over the long term. For more detail, watch Azzad’s video on the pitfalls of a short-term investing focus.

Markets detest uncertainty. As America approaches the eighth year of an economic expansion, any event that might upset the apple cart can take on outsized importance. The status quo, which Hillary Clinton largely represents, has been a boon to stocks over the last several years. But a Donald Trump victory would qualify as a break from business as usual. What would that mean for your portfolio?

Let’s break down the 2016 race to the White House and outline a few possibilities.

How would Trump impact the economy?
It’s true that politics and economics are intertwined and presidents can impact a country’s economic growth, but there are limits to that influence. Trump has promised to boost U.S. GDP immediately to 4-5%, but there are far too many complexities for a single person to have that much positive impact. The opposite, however, might not hold true. Despite a divided Congress, the president has the power to unilaterally curtail imports and punish trading partners, which could pump the brakes on the economy.

On a sector basis, insurance companies could tumble on the uncertainty of what would happen if Trump spent his political capital trying to repeal Obamacare. Trump’s call to roll back regulations on energy companies would be a boon to the oil and gas business. As for Clinton, one could expect healthcare and biotechnology stocks to take a hit over concerns that greater regulation would be on the horizon. Alternative energy companies could outperform thanks to her pledges to continue the Obama legacy of pushing America to be a leader in clean energy.

Both presidential candidates have promised to embark upon major infrastructure projects if elected, though Trump by a more sizeable percentage of GDP than Clinton. A large amount of debt-financed spending could take U.S. inflation beyond the Federal Reserve’s target rate of 2%, triggering more assertive monetary policy. That has the potential to harm stocks over the short term.

Shock to the system
Prediction markets currently regard a Trump presidency as a lower-probability event. And even though most prognosticators have picked Clinton over Trump, anything is possible. Regardless of the winner, the precise long-term consequences of economic policies are always hard to predict. Over the short term, investors should not be surprised if markets experience volatility in the event of a Trump win. The uncertainty represented by a candidate with no government experience would be a headline risk that even the hardiest of investors would find difficult to ignore.

Recent shocks like the Brexit decision in the United Kingdom provided only temporary turbulence, and markets eventually moved on, posting higher highs. Investors would doubtless get a case of the jitters if Trump wins. We expect, however, that markets would recover in a manner similar to what we witnessed post-Brexit, presenting opportunities for patient investors.

Of course, the outcome of the election might not actually decide which direction the markets take. Arguably, the biggest determinant of their future direction is the Federal Reserve, an apolitical institution that looks likely to raise interest rates next month.

What you can do
If market volatility ensues following the election, consider rebalancing your portfolio. Having a mix of assets that works best for your situation is an important part of investing. Over time, market moves can affect the allocation of your assets. For example, because stocks have enjoyed outsized gains relative to fixed income lately, your portfolio may now have a higher percentage of stocks than you originally intended for your goals. Therefore, you might be taking on more risk than you realize and should consider selling some of your stock holdings and reallocating them to less volatile fixed income. An Azzad representative can help you do that.

And finally, if your investment goals or time horizon have changed, we’re here to help. Give us a call at 888.86.AZZAD or email info@azzadfunds.com.

Thank you for your continued trust and investment.

Past performance cannot guarantee future results. No investment strategy can eliminate the risk of losses. Asset allocation, rebalancing and diversification are investment strategies used to help manage risk. They do not ensure a profit or protect against a loss.

The opinions and views expressed herein are current as of the date indicated, are subject to change without notice, and do not take into account particular investment objectives, financial situation or the needs of individual investors. They are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed.

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