Similar to the experience of many Americans, last night was a long night and the caffeine is flowing today at THOR.  The US election roller coaster has caused volatile market swings in both directions.  Last night, the Dow Jones Industrial Average futures started slightly up, then collapsed more than 800 points when Trump took a lead in Pennsylvania, then were down 250 points just prior to market open. Two hours into the market open, it was up over 100 points.  Many investors want to know what this means for the market and their portfolio.  In our September 30, 2016 Market Update, we discussed what we expected to happen if either Clinton or Trump won.  This is what we said about Trump and we still have conviction in these thoughts:

• Uncertainty (especially on Wall Street)
• Trade policies
  • Large U.S. multi-national companies will be negatively impacted as investors revalue those companies on the belief that trade between countries (whether real or perceived) will slow due to Trump’s trade policies.
• Animosity toward the Federal Reserve
• Lower taxes
  • Lower taxes increase economic growth which in turn will cause interest rates to rise faster.
  • Small company stocks may become more attractive if corporate taxes are lowered because these companies don’t employ lobbyists or tax teams that large companies do to help them reduce or avoid the high U.S. tax rates.
• More volatility
  • With more volatility, there tends to be more opportunity.

The “Brexit” phenomenon of ordinary people standing up against the establishment is worldwide and part of the reason for Trump’s win.   What we are experiencing here in the US is more acute in Europe as economic growth has stagnated the past few years.  The EU has enacted onerous regulations and a huge influx of immigrants is putting a strain on the social fabric of European countries.  Because of this we think volatility will be an ongoing issue both here and in world financial markets.  We also believe this will continue well into 2017 because of several major events throughout Europe:

• 1^st of 2017 – UK invokes Article 50 to leave the EU
• March – Netherland general election
• April/May – French Presidential election
• September – German general election.

Next year may likely be a year of fundamental change in Europe as there is a shift away from globalization to nationalization.

What does this mean for your portfolio?

Keep in mind that THOR employs a disciplined approach to investing that is based on fundamentals.  Those fundamentals continue to have us “risk off” as we are underweight equities, overweight undervalued, uncorrelated assets and shorter-term in our fixed income securities.  In the equity portion of our portfolios, we are overweight energy which should benefit from the policies Trump is espousing.  The uncorrelated assets (relative to both the equity and fixed income markets) should provide stability in a rocky stock market, and may actually appreciate.  After the 2008 Presidential election, some investors became emotional and sold off their entire portfolio at the wrong time.   This was a poor decision because the stock market was extremely undervalued.  Today is a different story.  You still have the constant of uncertainty, but it is now occurring at a time when US large companies are overvalued.  THOR has very little current exposure to the US large company segment.  Staying disciplined and not investing based on emotion is still the key to long-term returns.