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Head of Global Asset Allocation Strategy Tracie McMillion discusses the short- and long-term investor implications of the election outcome and potential Federal Reserve action.
Presenter: Tracie McMillion, CFA, Head of Global Asset Allocation Strategy, Wells Fargo Investment Institute
Title graphic: A Republican Government
Americans have chosen Republican Donald Trump to be their next president. Additionally, Republicans maintained their majority positions in the House and Senate. This "Republican Sweep" is typically considered a good combination for U.S. large company stocks.
Investors are initially focusing on the market-friendly aspects of Mr. Trump's policies. With both a Republican president and a Republican congress, tax reform and repatriation may be more likely; however, Mr. Trump's spending plans may face opposition from a Congress that tends to be more fiscally conservative.
Title graphic: Next Up, the Federal Reserve
Despite an initial sell off on election night, investors' response to Mr. Trump's victory has been generally positive. Relative market calm has paved the way for additional Federal Reserve action. Bond yields have been rising in expectation of a December rate increase. We believe there will be one rate increase this December or early next year and at least one additional increase in 2017, as the Fed maintains its cautious approach to raising interest rates.
The one caveat is that inflation may creep higher than we're currently forecasting, especially if Mr. Trump is able to enact more of his spending plans than is currently expected. Higher inflation may prompt the Fed to increase interest rates more aggressively than we or the markets are currently projecting.
Title graphic: Investor Implications
We believe that investors should keep their focus on their investment goals, risk tolerance, and time horizon. Historical relationships between asset classes can help guide longer-term investment decisions, while tactical adjustments may help to manage risk in the shorter term.
All investing involves risk including the possible loss of principal. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. Bonds are subject to market, interest rate, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Real assets are subject to the risks associated with real estate, commodities and other investments and may not be suitable for all investors. Alternative investments trade in diverse complex strategies which may expose investors to considerable risks. Be sure you are aware of, and understand all risks associated with a particular investment.
The opinions expressed reflect the judgment of the speaker as of the recording date and are subject to change without notice. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results. Additional information is available upon request.
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