It is now official.
Donald Trump will be the 45th President of the United States.
U.S. citizens have voiced, through their votes, that they want change. U.S. economic growth is anemic, and Mr. Trump has been a strong proponent of change and spending aimed to stimulate the economy.
Major North American equity markets are fluctuating between positive and negative territory, but not at alarming losses. Trading volume is high.
Equity markets were initially under pressure due to shock and uncertainty, not capitulation nor fear.
Initially, when there is a surprise that catches investors off-guard, market momentum is negative. Emotions play out - as is to be expected. The Trump victory was unforeseen by many because the polls were wrong - this outcome was not widely anticipated.
In addition, investors simply do not know what president-elect Trump will do when he takes office and what implications his victory has for global trade and global economies. The market does not like uncertainty, and consequently, in the near-term, there are more sellers than buyers, which is putting downward pressure on equity markets.
The Chicago Board Options Exchange SPX Volatility Index, or VIX Index, is down over 15 per cent to a reading of approximately 16. This does not reflect excessive fear or panic in the markets. In fact, a falling reading represents the opposite.
Once the dust settles, and emotions soften, investors will shift their focus to two things - economic conditions and company fundamentals.
This market turbulence can be a buying opportunity for long-term investors focused on holding a diversified portfolio of fundamentally strong companies.
That being said, there are not a lot of bargains to be had. Many stocks are trading at fair valuations, not cheap valuations.
In the U.S., the S&P 500 Index and Dow Jones Industrial Average are just a few percentage point off from their record closing highs.
The S&P/TSX composite index is trading at a forward price-to-earnings (P/E) multiple of over 15 times, well above its five-year historical average of 13.8 times, and not far off from its peak forward P/E multiple of just over 16 times.
This political outcome emphasizes the need for careful stock selection, and successful stock pickers will be greatest beneficiaries.
Today, forest product stocks are down sharply with the softwood lumber dispute unresolved. Stocks such as Canfor (CFP-T), Interfor (IFP-T), Western Forest Products (WEF-T), and West Fraser Timber (WFT-T) are leading laggards. Amongst the top performers are gold stocks as there is still uncertainty.
Investors are in a wait-and-see mode. We will have to see what decisions Mr. Trump makes such as what cabinet members he will select, and what policies he will tackle first.
While equity markets may have averted losses today, we may see a resumption of volatility once Mr. Trump is sworn into office and his first policy moves become clear.