Equities Outlook – What's In Store for Stocks?

March 15, 2017

The Trump administration's policy agenda will impact various economic sectors in different ways. With uncertainties around the specific outcomes and timeframes of these policies, it’s important to stay flexible and take a long-term view when it comes to performance and your portfolio.

Three areas of potential change that could have some of the largest market impacts:

  • Infrastructure Spending
  • Regulatory Reform
  • Rising Interest Rates

Infrastructure spending

President Trump has emphasized that creating jobs and spurring the economy is one of his top policy priorities, which may lead to increases in infrastructure spending. Businesses that may benefit from this increased spending supply the materials, labor and machinery involved.

These companies are mainly part of the materials and industrials equities sectors, but make up part of the energy sector as well.

Regulatory reform

Not long after taking office, President Trump began taking steps to reverse some Obama administration policies and implement new policies in several key areas.

The Affordable Care Act (ACA) represented an overhaul of the U.S. healthcare system, and led to winners and losers within the healthcare sector. If the ACA is repealed or reformed, another round of companies will likely experience additional changes.

The financial policy landscape also has the potential for significant changes that could lead to a less restrictive environment for financial services companies. In addition, potential regulations and policy positions on immigration and trade may affect certain equity sectors.

Fewer skilled immigrants could hurt technology companies in particular, while trade restrictions could have varying levels of impact on numerous industries.

Rising interest rates

Rising interest rates have been a trending topic for some time, with the expectation of small, incremental increases to continue. Numerous equities sectors have the potential to be affected by these rising interest rates – both positively and negatively.

Financial firms have the opportunity to benefit from rising rates, as firms could see an increased spread between the rates they pay savers and the rates they receive from investments.

The energy, consumer discretionary and industrials and materials sectors are less sensitive to increases in long-term interest rates, and may be better positioned to benefit from policy changes brought about by the Trump administration.

However, other sectors known for paying healthy dividends, such as utilities, consumer staples, real estate and telecom tend to suffer with rising interest rates.

Focus on long-term performance, not short-term circumstances

As with most large-scale economic events, the election of President Trump and the effects of his administration's policies will have a range of implications across financial markets.

Recent stock performance has varied significantly among equity sectors, but it’s important to remember to focus your attention on long-term time horizons, not short-term fluctuations. Your financial goals and investment strategy should take priority, regardless of the political environment. Maintaining an appropriately diversified portfolio and staying invested for the long term can help you to be in a better position to weather political uncertainty or market volatility that may arise in the future.

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