Over the last two weeks we have seen very volatile markets, both here in Australia and in the European and US Markets.

These reversals of the very strong growth we saw earlier in the year are largely sourced to the US elections and the ‘threat’ of a Trump led United States.

Ignoring the personalities of the two candidates and their well publicized shortcomings, the volatility we are seeing is supposedly about the impacts their policies will have on investment returns.

Looking at the policy platforms the candidates are running on

Mr. Trump has been proposing the following: reduce taxes “across-the-board”:

  • replace or repeal the ‘Obamacare’ affordable health insurance amendment;
  • reduce company tax rates;
  • Build a fence between the USA and Mexico;
  • apply significant tariffs to foreign imports; and
  • more fiercely regulate immigration:
    • His plans include suspending Syrian refugee admission and building his promised wall along the Mexican border.

Mr Trump claims these tactics will improve domestic growth and produce millions of jobs.

On the other side of the room Ms. Clinton’s platform has promised to introduce a ‘raft of changes’ including:

  • The elimination of tuition fees for some students;
  • immigration reform;
  • establishing a government-run insurance plan as part of Obamacare;
  • capping the cost of prescription drugs;
  • eliminate gender-based pay parity;
  • overturn the Trans-Pacific Partnership;
  • increase the federal minimum wage; and
  • Institute more background checks for gun sales.

Importantly for both candidates, no matter who becomes president these changes would first need to pass the US Congress without opposition and some of Ms Clinton’s proposals would also need to navigate the Supreme Court before they could be legally enacted.

The market fear would seem to be coming from the impact the ‘protectionist’ policies of Trump vs Clinton would have on the rest of the world and also the geopolitical tensions that would be caused by Mr Trump’s position on no longer being the ‘worlds policeman’.

On protectionism it can be argued that both candidates represent a shift from the current political consensus of globalization. Keeping industry at home is a popular catch cry so it would seem no matter the result we will see an impact on international trade.   This would have some impact on Australian multinational companies but the US accounts for less than 10% of Australia’s exports with the heaviest weighting to airline parts, meat and wine.

A stronger US immigration policy while probably politically popular will have little impact in Australia as our immigration to the US is low.

So why are the markets so rattled with a potential Trump win?

Surely the President can be controlled by the Congress and Trumps ‘wilder’ ideas can be kept in check?

Well sort of.  American Presidents have the Power of Veto.  Article 1 requires every bill, order, resolution or other act of legislation by the Congress of the United States to be presented to the President of the United States for his approval.

So while they might make his life very difficult, he can make it just as difficult for them and based on his media persona, that could be very difficult indeed.

As we know from the state of Australian politics, an opposition that rejects every policy, just because it can, can do real damage to the economy and America is still not out of the woods economically.

So where does that leave us?

As Troy mentioned in his recent update, our active managers had already taken risk off the table and increased their (and therefore your) cash holdings. Speaking to them over the last few days, they are seeing a lot of opportunity and are moving back into the market, albeit only on assets that they see as bargains.

They are expecting further volatility, no matter what the result , but they do see a lot of negative news is already factored into the prices over the last 9 trading days.

Will a Trump victory cause shares to drop further? Probably and that will be a strong signal for them to buy.

A Clinton victory will see certainty return and it is likely to lead to a rally so shares could get more expensive quickly.

Those of you with growth portfolios are already well positioned but we wont see the value for  at least two to three months as markets settle down to the new normal.

All will become a lot clearer in the next 72 hrs.