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November 2016 Market Update

It is November 9 – the morning after. The election is over, and we all now know – Donald Trump will be the 45th President of the United States.

There are any number of things to say about what happened last night. Since we are a business organization, I’d like to focus on the implications of this election on the economy. From the moment the equities markets first realized that Trump would possibly, and then probably, win the election, stocks have sold off. Dow futures were down as much as 800 points overnight, and are currently down about 200 points as I write this article. Minute-by-minute price changes are not as interesting as the underlying reasons why the markets are reacting as they are.

There are probably two aspects of the Trump election that are most concerning to the markets. Both have to do with Trump’s strong “Fortress America” stance. 

The first is immigration. Trump has been very clear that he would like to see the eleven million or so illegal immigrants in this country sent home. He has also suggested that he would make future immigration to the country much more difficult, particularly for groups he views as undesirable or even dangerous. On the first score, Trump will face many obstacles, both legal and logistic, in any effort to remove undocumented people from this country. But on the second score, he can and probably will make immigration more difficult.

Many Trump voters believe this is a good thing, and believe that immigrants take more from this country than they give back. But most experts (I know, no one likes experts anymore) believe just the opposite. On the low end of the wage-scale, immigrants often do work that native-born Americans just won’t do. On the high end of the wage-scale, immigrants bring skills that not enough native-born Americans possess. On both fronts, the contribution these immigrants make is important. Losing these sources of labor could hurt economic growth and is of concern to the markets.

The second is trade. Trump has made it clear that he wants to rip up existing trade agreements and make future agreements much more favorable to this country. Trump’s voters believe that trade has hurt this country, pushing good-paying manufacturing jobs to other countries where labor is cheap, and flooding this country with low-cost goods that unfairly compete with US-made products.

Again, the discredited experts would tell you that many of the lost manufacturing jobs disappeared, not because of cheap labor abroad, but because of technological changes that lessened the need for labor in the first place. Regarding trade agreements, it is probably naïve to believe that we can impose stricter controls on imported goods without facing the same restrictions on our exports. More restrictions on trade could also be expected to hurt the economy and are therefore also of concern to the markets.

We will soon find out. Trump will take office in January. Both houses of Congress and, inevitably, the Supreme Court will all be in Republican hands. As long as the Republicans stay united, Trump will be in a strong position to make good on his promises. How this plays out in the economy remains to be seen. But the facts suggest that the promises might be harder to deliver than the rhetoric. Only time will tell. Meanwhile, keep an eye on the stock markets. They operate on democratic principles as well – one dollar, one vote.


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