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The Trump Effect: One Month Later

Investments, Investment Views

Posted by Scott Pountney

Dec 15, 2016 2:05:15 PM

Director, Retail Investment Products
Empire Life Investments Inc.
Directeur, Produits de placement, Marchés individuels
Placements Empire Vie

We’re now a little over a month since the surprise election of Donald Trump as the 45th President of the United States. The other surprise to most is that financial markets have responded as strongly as we witnessed since market open on November 9th (see table below). It is almost as if the Trump presidency is the “cure-all” elixir for all that ails us.

IndexPerformance (Nov 9 - Dec 9)*
S&P/TSX Small Cap7.18%
S&P/TSX Composite4.74%
S&P 500 (in CAD$)4.47%
MSCI EAFE (in CAD$)0.37%
FTSE TMX Canada Universe Bond-2.54%

*Source: Morningstar; Bloomberg.

For Canadian investors, a return of the reflation trade (rising growth and inflation) could bode well. Commodities tend to perform well in this environment and we have lots of those. Not surprisingly, Canadian equities have been strong performers. At the time of writing, oil prices are back up above $53/bbl, the highest level since mid-2015, as both OPEC and non-OPEC producers reached a deal on output levels.

Of course, the flip-side of the reflation trade is that bond investors don’t fare so well. Indeed, for those who increased their bond allocations as defensive posturing ahead of the U.S. election, they are now experiencing first-hand that even boring bonds can expose investors to the effects of short term volatility. That being said, having equities and bonds moving in opposite directions is a good thing and an excellent reminder of why we should diversify our portfolios in the first place.

To see how the Empire Life Emblem Portfolios are positioned heading into year-end, please click here.