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Resist the urge to overreact to volatility after Trump victory
Edward J. Perkin, Chief Equity Investment Officer
Boston - Yesterday, American voters followed the lead of their British brethren by playing their populist "Trump" card. The playbook of Brexit is instructive for investors worried about the volatility that's hitting markets.
The uncertainty leading up to the election caused some market swings, and the reality of the outcome is rippling around the globe.
If the Brexit playbook holds, the right thing for investors to do is to look through the near-term noise for opportunities. As it turns out, U.S. futures have retraced almost all of their initial fall as of this writing.
It is worth remembering that the U.S. system of government restricts the powers of the presidency and that new legislation originates in Congress. That said, President-elect Donald Trump clearly has a mandate to restrict immigration and renegotiate trade agreements.
Beyond those two issues, the agenda is likely to be driven by the Republican House of Representatives and will include significantly reduced corporate tax rates, cash repatriation and an infrastructure package. Setting aside the likely near-term uncertainty, this is not too different from what would have happened under a Hillary Clinton presidency.
In the equity markets, we could experience a situation similar to Brexit with a sharp sell-off for a few days, then investors buying the dip. Potential winners include healthcare and capital goods companies, as well as domestic-facing companies with high tax rates and foreign competitors.
Bottom line: In these moments, it is important for investors not to overreact, and to take a long-term view.