We now know Donald J. Trump is going to be the 45th president of the United States. The election results came as a surprise to many, and futures markets on the night of the campaign responded – as they always do when the unexpected happens – with volatility. By the time the markets opened on Wednesday, things had calmed down but that could be short lived. Here at home, Canadians might be wondering what a President Trump term will mean to their investments and bottom line.
Trump has promoted a protectionist agenda throughout his campaign, to tear up deals like the North American Free Trade Agreement (NAFTA) and stop the Trans Pacific Partnership (TPP) from being ratified. Any of this would be negative for Canada’s economy. Canada does 75 per cent of its trade with the U.S. As well in the last two decades, NAFTA has had an overwhelmingly positive effect on the Canadian economy. It has increased trilateral trade within North America from $288-billion in 1993 to more than $1-trillion in 2015. Experts say if NAFTA changed in any significant way, it could send Canada into a recession.
Interest Rate Cut
Looking ahead to 2017, the Bank of Canada could very well cut rates. Bank of Canada governor Stephen Poloz has indicated that he almost made the decision to cut rates at the last interest rate announcement on October 19. Now experts say that is even more likely.
“Given the possible impact on the economy from trade policies and the increased uncertainty, the likelihood that the Bank of Canada will need to provide further monetary easing in the medium term has increased,” says Charles St-Arnaud, senior economist at Nomura Securities International in London (St-Arnaud has also worked in Canada’s finance department and at the Bank of Canada).
Real Estate Prices
Claims that real estate prices will skyrocket due to Americans moving here in droves is exaggerated. What is likelier is that real estate prices will continue to rise, because credit will remain cheap and rates are still low. Canada’s real estate market is seen as a safer place to invest than the U.S. real estate market. With Trump as president, Canada’s market will become even more attractive, not just to American investors but anyone around the world.
Call Your Financial Adviser
Investors here in Canada worried about their savings should make time to give their financial advisor a call. They will probably give you the same advice as I am: if you are invested in good quality stocks that pay a healthy dividend, there is nothing to worry about. This is not the time to capitulate and sell your investments, just because something unexpected happened. However, if you are invested in more volatile stocks, especially in the U.S. markets, you might want to put what is called a stop order on those stocks. Should they fall to a certain level, then the stock will sell. Still, this is not something you should do without a lot of thought and consideration. You don’t want to sell a good stock simply because it has a few bad days.
Whether it’s your retirement savings, money in your TFSA or your kids RESPs, expect volatility over the next few months. There are a number of events that could impact the market in that time. Before Trump is sworn in on January 20th, 2017, two interest rate announcements are taking place, as well as an important OPEC meeting in Vienna. The first interest announcement will be from the Bank of Canada on December 7th where it’s widely expected the Bank will keep rates steady. The next will be from the U.S. Federal Reserve on December 14th, where the chance of a rate hike is not as high as it previously was. At the OPEC meeting, the price of oil will top the agenda, and any change in oil prices would impact stocks on the TSX.
What are your thoughts on the upcoming Donald Trump presidency? Do you have concerns and if so, what are they? Please share them in the comments below.