“A market friendly presidency” – advisors weigh in on Trump’s possible return

Having now waltzed to victory in the Iowa caucus and New Hampshire primary, Donald Trump is the clear front runner for the Republican Party’s nominee for President. Watching US politics play out from up here in Canada can sometimes feel like watching a circus, but as we learned when Trump was first elected in 2016, the outcome of the US election has serious implications for markets and investments. Advisors, too, would be well aware of how the endless news cycle is impacting their clients’ outlooks and affecting their decision making.

“Even in Canada we get inundated with news from the US. You have Canadians who are really focused on watching the circus that goes on in US politics. Many of those clients tend to focus on the emotional side of things and I don’t think they realize, to a certain extent, how good Trump was economically, as measured by the stock market,” says Scott Starratt senior investment advisor and portfolio manager at Starratt Wealth Management of Canaccord Genuity.

When assessing the likelihood of a Trump presidency, Starratt focuses almost exclusively on what his impact might be on investments. While he accepts that the President does not control the stock market directly, he notes that the Trump administration was particularly market friendly. Tax cuts, especially for corporations, as well as a willingness to spend money and advocate for lower interest rates were all hallmarks of the Trump administration that stock markets seemed to love. Trump explicitly measured his success as President by the performance of the S&P 500, which Starratt thinks bodes well for investors should Trump win the nomination and beat Biden in November.

That is not to say Starratt doesn’t see risks in a possible Trump win. Most of those risks, however, are isolated to the realm of Geopolitics. Trump has noisily questioned the United States’ role in the world, including its support for Ukraine and possible role as a mediator in the Middle East. Starratt thinks that advisors keen to protect against Trump’s potential impact on the world stage, could hold hedges like gold which tend to do well as geopolitical uncertainty spikes.

There is also the emotional management side of an advisor’s practice to consider. Starratt notes that he has clients who are “horrified” at the prospect of Trump’s return, and others who are excited at the prospect. He says that some of his clients think Trump winning again could spell doom for their portfolios, and Starratt has to calmly demonstrate that recent history would tell us otherwise.

Shiraz Ahmed makes a point of shifting emotional conversations into the realm of the rational. The Senior Financial Advisor & Senior Portfolio Manager of the Sartorial Wealth Team at Raymond James specializes in cross-border service. He sees firsthand how political shifts in Canada and the US can prompt people to make as drastic a decision as moving to a new country.

“It’s kind of the purple elephant in the room,” Ahmed says of a possible Trump win, “There are a lot of things that have to happen between now and then, but I’d be lying if I said I wasn’t at least thinking about it…No matter who wins there’ll always be a cohort of folks who are unhappy, but that can end up leading people down the path towards an emotionally charged decision.”

Ahmed says that his role is to ensure clients are fully aware of the costs and financial impacts of their decision. Whether that involves double taxation, or the losses that could come with closing a retirement account in either country. In his own practice, he’s simply ensuring he has the scale and capacity to deal with any issues that emerge as we get closer to election day.

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US elections can often introduce volatility for certain sectors, or the wider market. As of now, Starratt thinks it’s a bit too early to make any portfolio adjustments. Neither nominee is confirmed, and the election cycle hasn’t hit full volume yet. He also notes that from a fiscal and monetary standpoint, both Biden and Trump are quite happy to spend big, so there may be less risk to certain stocks and sectors than we’ve seen in past election cycles. When the election noise begins to ratchet up, Starratt advocates for tuning it out somewhat and focusing more on the fundamental drivers behind companies.

While Starratt doesn’t see a Trump win as inherently risky from an investment standpoint, he does think the greatest risk in the election is if it’s a close result and both nominees claim victory. We saw in the wake of the 2020 election that Trump was willing to contest the result and that his followers were willing to take drastic action to support him. The prospect of a similar or worse event happening in 2024 is a real risk that Starratt is aware of.

Nevertheless, Starratt believes that advisors need to stay focused on the rational when they talk to clients about a figure who increasingly elicits a visceral response. Keeping clients focused on their portfolios, with an eye to history, can be very helpful when the news gets noisy.

“They always say you should never talk about politics and religion, now it’s politics, religion and Trump,” Starratt jokes. “Part of our job as advisors is to look at the math, look at the statistics, look at the results. The results from the first presidency are pretty clear, it was not a horrible time to be invested in US stocks. From an advisor point of view it’s our job to be the voice of reason with clients and try to remove emotion as much as possible.”