Markets Rally but Trump Win Will Mean Inflation & Debt Down the Road
Stock Market Rally in Aftermath of Stunning Trump Win
Donald Trump’s win Tuesday is seen as a victory over the political establishment and a return to conservatism. The news also triggered a triggered a massive stock market rally. In the long run though, the Trump win will likely mean inflation and debt down the road.
As the votes came in on Tuesday night, gold jumped and the stock market plunged. The shock and surprise as the GOP candidate took the lead sent ripples of uncertainty through the markets. They shook from volatility as Hilary Clinton had been significantly favored to win. However when the markets opened Wednesday, stocks soared. On Thursday, the stock market hit an all time high, and by Friday’s close they set another all time high. Gold, meanwhile, which generally moves in opposition, has made a significant pull back falling approximately $100 from its Tuesday night high to Friday morning.
What this means for investors: Short term, gold prices will likely remain subdued. Many analysts were predicting that gold prices would jump with a Trump win due to the volatility factor. However many of these same analysts were expecting a Clinton victory anyway.
Stocks are up because of Trump’s promises of economic growth, de-regulation, tax cuts, and job growth. With the Federal Reserve already making a case for an interest rate hike next month, don’t be surprised if we finally see the long anticipated hike. Stocks are on an inflationary trajectory, and a rate hike could send the inflated market crashing.
Inflation and Debt Levels are Going to Soar Long Term
Trump’s “outsider” and populist status undoubtedly is a thorn in the side of Wall Street and the political establishment. Voting stats have shown the economy, more so than his traditionally conservative social policy, was the impetus for his rise. His economic plan, however, is far from from being conservative in the traditional sense. With the massive spending plan he has promised, the skyrocketing national debt is going to balloon even further and we will see a spike in inflation.
Trump has pledged increased spending in defense and infrastructure. This will undoubtedly add to the debt. At the same time he has proposed tax cuts. In the long run these tax cuts will help stimulate business and hiring. However, short term it will mean loss of tax revenue to finance the spending increases.
What this means for investors: If Trump’s projected spending passes, it will be be the harbinger of inflation. Gold and silver protect against inflation. When the top finally blows on the stock market, gold is going to be the safest net for preserving wealth. Buying gold while prices are low will best protect against the future. Right now gold is down to its June levels. Gold will also benefit long term due to uncertainty around Trump’s proposed trade tariffs.
Watch the Bond Market – China Selling off Treasuries
The bond market tells a lot about what to expect from the economy. Since Tuesday, 10-year yield bonds made a 30% jump in yield to its highest yield all year.. A rise in yield means bonds are cheaper and being sold. Investors are selling them off at an alarming rate. China, on the heels of devaluing the yuan, has been selling trillions of dollars worth of treasuries.
What this means for investors: The strength that the dollar has been enjoying this year is going to pull back. Dollars are looking less attractive to investors and bond holders. Inflation will devalue the purchasing power of the dollar. When the dollar goes down, gold goes up.
How the World Reacted to Trump Win
World leaders immediately started phoning and tweeting reactions to Trump’s wins. Some subtly voiced reservations, but the overall sentiment was congratulatory and optimistic.
A major concern of Trump opponents is that he would be unable to cooperate with other world leaders. On foreign policy, the President Elect has stressed the need to re-define an image of a tough America that its allies can rely on.
What this means for investors: Geopolitical events have a significant impact on gold and the markets. Having no political foreign policy experience and few policy specifics expressed thus far, it is still uncertain how Trump’s presidency will impact the world and foreign affairs at large. The reservation that some world leaders still have indicates there could yet be an increase of uncertainty in the markets that would drive gold prices.
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Here are some articles from the web discussing the topics in this week’s post:
Stock Market Rally in Aftermath of Stunning Trump Win
Inflation and Debt Levels are Going to Soar
Watch the Bond Market – China Selling off Treasuries
How the World Reacted to Trump Win
As always, I encourage you to speak with your broker at RME for more market updates. Expert brokers are available Monday-Friday from 9 AM- 5 PM or by special appointment after hours. Call today at 602-955-6500 or toll-free at 877-354-4040.
