The Trump Effect: Managing Client Portfolios in 2017

By Brian O'Connell

Now that Donald Trump is assured of claiming the White House on Friday, Jan. 20, 2017, there are some things advisors need to know.

First of all, calm clients down, and, if needed, walk them through this post-election portfolio strategy.

Where to start? Both clients and advisors face a bevy of questions after Trump’s surprise win in November.

Is there a need at all to change a client's portfolio now? What will President Trump do, economically, that may steer investors towards new directions? How will Trump govern economically, and how will that change client portfolio strategies?

Good Economic News

So far, the economic news is good with Trump’s political team transitioning to the Oval Office.

Since Nov. 8, when Trump bested Hillary Clinton in the U.S. presidential election, the Dow Jones Industrial Average and Nasdaq Composite have climbed steadily.

Additionally, U.S. consumer confidence rose to its highest levels since July 2007 in November, climbing to 107.1. That’s up from 100.8 in October.

Call it luck or call it ‘good timing,’ but an incoming Trump administration should benefit from OPEC’s Nov. 30 announcement to curb oil production, the first time OPEC has initiated a cut in supply in eight years. Crude oil prices rose $50 on the news.

Policywise, the Trump transition team has been fairly mum on the economics side, other than to alert Congress to expect a slew of fiscal-stimulus measures to upgrade ailing infrastructure. That would boost federal spending, spur job growth, and grease the skids for a surging economy, if all goes according to plan.

All of the above are only short-term trends. Any talk of clients making major portfolio shifts based on a new presidential administration is greeted with skepticism, if not derision, by money managers.

“Investors should avoid any reactionary moves to the change in administration,” said Andy Schwartz, principal at New Jersey-based Bleakley Financial Group.

“Whether or not investors like President-elect Trump, they should set personal feelings aside and wait until the markets settle to base decisions on a long-term, macro view of his policies instead of short-term emotional reactions,” Schwartz added. “They should avoid getting mired in speculative chatter, and stick to a strategic plan with a disciplined investment process.”

Others agree, adding that it’s no surprise markets are churning upward this month, and that it’s no guarantee that trend is sustainable.

"This, too, shall pass,” stated Jeremy Torgerson, chief executive officer at nVest Advisors in Brownsville, Texas.

The market is reacting to the chance that pro-business policies such as lower corporate tax rates, infrastructure spending, and a change in the ACA will boost business prospects here in the U.S., he explained.

“Just remember, the market always moves past what is rational and enters emotional territory at the tops and bottoms,” Torgerson added. “At some point, the rubber band will snap back.”

Still, it could be good time to rebalance, he said.

“Rebalancing shifts your portfolio back to its original intended percentages of stocks vs. bonds vs. cash,” he said. “After significant market climbs, a portfolio that was originally supposed to be 50/50 might find itself 60 percent in stocks, which means, when the market corrects again, you've exposed 60 percent of your money to a correction instead of the 50 percent you intended.”

Torgerson reminded money managers that existing bond categories will become less expensive to add to client portfolios as interest rates rise.

Not “Panic” Time

Most financial advisors say drastic changes to a client’s portfolio, even after a drastic presidential election, just aren’t necessary.

The quarter-point interest rate increase by the Fed last week is a bigger influence, said Robert Johnson, president of The American College of Financial Services in Bryn Mawr, Pa.

Stock market sectors that have the best performance during a rising interest rate environment are energy, financials, utilities, and consumer goods.

“An advisor considering some sector rotation may be wise to look to those sectors,” Johnson said. “Sectors that perform poorly during rising rate environments include retail, automobiles and durable goods. Advisors who believe moves need to be made might consider underweighting those sectors.”

Building wealth is a “long game” and advisors and clients should not make the mistake of overreacting to political or economic events, Johnson said.

“If a client had a financial plan prior to the election, it should not change as a result of the election,” he noted. “Attempting to respond to the crisis de jour is fraught with peril and likely to result in disappointing performance.”

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].