Markets whipsawed wildly once it became clear that outsider Donald Trump had ascended to the Oval Office. For a brief moment, it appeared the cataclysm that many economists and analysts on Wall Street had been dreading had finally arisen.
It was feared that Trump’s regressive policies on immigration, foreign aid, trade, and taxation would spark considerable volatility and eventually lead the U.S. into a recession.
Nonetheless, after Trump addressed financial markets and shot some assurances their way, they calmed, and many, including the Toronto Stock Exchange, rallied, closing higher than when they had opened.
This indicates that a Trump presidency is not as destabilizing for financial markets as many pundits would have investors believe.
Now what?
Regardless of Trump’s earlier controversial and regressive policy statements, which many analysts interpreted as being bad for the economy, there are signs that a Trump presidency may in fact be positive for markets.
His rhetoric on foreign aid, military alliances, international trade, and immigration has been inward looking and controversial. If implemented, it possesses the potential to provoke greater global economic and political volatility in an economy riven with problems.
However, many of his domestic policies will have a positive effect on financial markets and help to support growth across a range of industries.
Trump has vowed to invest heavily in U.S. infrastructure, including roads, rail, bridges, and hospitals, which will be of tremendous benefit for mining stocks; it will create a significant increase in the demand for commodities that are critical to construction, such as iron ore, coking coal, and copper.
As a result, it will not only confirm claims that the commodities slump is over, but it has the potential to drive prices to new post-slump highs. That is great news for Teck Resources Ltd. (TSX:TCK.B)(NYSE:TCK) and First Quantum Minerals Limited (TSX:FM), which have already substantially benefited from the massive uplift in coking coal and copper prices.
Trump also plans to repeal or at least reform the controversial Dodd-Frank Act, which imposed onerous regulatory requirements on U.S. banks. Along with Trump’s support for higher interest rates, which would boost bank earnings and margins, this highlights there could very well be a strong period of growth ahead for U.S. banks.
This would benefit Toronto-Dominion Bank (TSX:TD)(NYSE:TD), which is the only Canadian bank to have a solid U.S. presence, placing it among the top 10 U.S. banks.
Another big winner will be the energy industry, or, more specifically, the U.S. energy patch. It’s likely that many drilling restrictions will be lifted and other regulations moderated.
This could benefit those Canadian energy companies, including Baytex Energy Corp. (TSX:BTE)(NYSE:BTE), Crescent Point Energy Corp. (TSX:CPG)(NSYE:CPG), and Enerplus Corp. (TSX:ERF)(NYSE:ERF), which all have a significant presence south of the border.
More importantly, this could very well be a massive boon for midstream services company TransCanada Corporation (TSX:TRP)(NYSE:TRP).
President Obama’s decision to block the controversial Keystone XL Pipeline was a tremendous blow for the company, but Trump’s focus on infrastructure and rejuvenating the energy industry may see the project rise from the ashes.
Such an event would be a tremendous boon for TransCanada, which has been battling to identify other major growth opportunities since Obama killed the proposed pipeline a year ago.
So what?
It won’t all be plain sailing in coming months as markets battle with understanding the policies and contradictory statements of one of the most contentious president-elects in U.S. history.
Nevertheless, Trump’s ascension to the White House is not as provocative or as bad for financial markets as many headlines and pundits would have investors believe.
Certain industries will benefit from his policies, and the promises to cut corporate taxes, reduce the tax burden for the wealthy, and ease regulations for many industries will aid markets as a whole.
