What the Election Means for Investors

All of which is to say that for the long-term investor, attempting to predict how a president-elect’s policies will affect the financial markets is a perilous task

John Rekenthaler 14 November, 2016 | 14:25
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The financial markets responded to the news of the U.S. presidential election. The Mexican peso soared, then plunged; European currencies and gold bullion rose; and Japan’s Nikkei Index plummeted. Should investors take action? Hindsight urges yes. Under the Reagan presidency, fierce anti-inflation policies tamed inflation that had been sabotaging asset prices for the previous 15 years. Treasury bonds enjoyed their best performance in forever, and stocks kicked off a historic bull market. The contrast with the Ford/Carter years was dramatic. Wall Street was reinvigorated, tens of millions of Americans became first-time investors, and a little company called Morningstar was founded, to track these things called “mutual funds.”

That seems an obvious case where the presidential election's results affected the financial markets in a meaningful, predictable fashion. Ronald Reagan was the businessperson’s president, elected to whip inflation that had bedeviled his predecessors, and he delivered on that promise. When he did, stocks and bonds rallied. For investors who connected the dots, there was money to be made.

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John Rekenthaler  is vice president of research for Morningstar.

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