Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Digesting the 2016 Election
The unexpected victory of Donald Trump has been a reminder of the growing dissatisfaction many Americans have with the political establishment of this country. Even though we can look to history, which tells us elections and presidents don’t typically have a lasting impact on financial markets, many are questioning whether it will be different this time. While this moment of uncertainty may persist for longer than we would like, it is our view that the economy will continue to grow, corporate earnings growth will persist and global financial markets will allow us to uncover compelling opportunities to grow our client’s portfolios over time.
Over the last two years, investors’ nerves and stomachs have been tested several times when the stock market experienced a correction, and then recovered within a matter of weeks. These moments have been a good reminder of just how much equity markets dislike uncertainty. While even the most experienced investors find this kind of volatility unsettling, maintaining a long-term view and positioning portfolios to perform well in a variety of conditions is essential. At Sand Hill, we pride ourselves on our commitment to maintaining diversified portfolios which help dampen volatility, provide the potential to benefit from positive market returns and protect against excessive risk.
As a result of the unexpected nature of their outcomes, comparisons between the US presidential election and Brexit are easy to make. It is apparent that the rise of nationalism around the world, from Britain and across Europe, has washed up onto our shores as well. However, the US election is much more important economically, politically and militarily than Brexit or other notable movements to date. One unexpected outcome from last night’s election is the Republican sweep of both houses of Congress. This outcome will allow Congress to more easily implement policy without the gridlock that has existed for the last several years. While politically many of those policies, without any natural checks and balances, may be unpalatable to many, for the time being, the markets are interpreting this outcome as pro-business rather than the doomsday scenario many predicted. While having an unconventional president in office creates uncertainty, in the intermediate term we do not anticipate a structural weakening of our economy or an outcome that would be significant enough to derail the recovery in corporate earnings growth we are anticipating in 2017.
Trump’s campaign pledges focused on lowering taxes for both individuals and corporations, renegotiating trade treaties and stepping up fiscal spending, among other things. While it is impossible to predict the financial market reaction of these pledges becoming policy, further economic stimulus in the form of tax cuts and fiscal spending could potentially result in stronger economic growth, along with a higher fiscal deficit, which could cause interest rates to move higher. This could spur a sector rotation away from historically low volatility, high dividend paying sectors of the equity market such as consumer staples, utilities and REITs as their yield would become unattractive relative to yields in the fixed income market. These are areas we have been moving away from this year given their lofty valuations and limited upside potential. The financial market impact from strained foreign relations is hard to predict but one potential outcome could be lower demand for the US dollar which would serve to weaken our currency in the global marketplace. This outcome would be a positive for export-driven US manufacturing businesses although, admittedly, it could be offset by a lower volume of international trade.
Of course, many of these campaign pledges may never come to pass. Trump’s tenuous relationship with House Speaker Paul Ryan, and their two very different philosophies on topics such as entitlement reform, could mean new tax legislation will be slow to materialize. While many unknowns remain, we positioned portfolios conservatively leading into the election and have maintained a disciplined investment approach. This has included opportunistically investing in out-of-favor asset classes, such as regional banks and commodities that should benefit from higher interest rates and industry-specific turnarounds, which we don’t expect to be significantly impacted by new initiatives in the White House.
As always, we want you to feel comfortable and are available should you have questions about your portfolio. We plan to continue following a disciplined investment approach on your behalf by focusing on the underlying health of the global economy, maintaining and rebalancing diversified portfolios as circumstances evolve, and favoring areas that we feel have the most potential to add value to your portfolio.
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.