Post-Election Volatility—We’ve Only Just Begun

“The fact that Republicans retained control of both houses of Congress will help Trump achieve his priorities, but without a filibuster-proof majority, he still faces an uphill climb,” Steffen says. “We could be looking at another couple of years of gridlock, at least until after the 2018 midterm elections.”

That leaves investors with the uncertainty of whether any of Trump’s plans will actually be implemented—and volatility thrives on uncertainty. Increased volatility will turn investors’ eyes to the Fed, where most observers anticipate an interest-rate hike based on positive economic indicators—but volatility could tie policymakers’ hands.

“The bond selloff reflects concerns that the Fed will stay on hold in the wake of the Trump uncertainty,” said Scott Minerd, chairman and global CIO for Guggenheim Investments. “The Fed should move to raise rates in December to offset the strength in the economy. No action could be viewed as political if data remains strong.”

In written commentary from Hartford Funds, Tom Siomades, head of its investment consulting group, said that the Fed should move in December, “unless the stock market selloff persists worldwide.”

In an analysis, Janus Capital group argued that a Trump presidency could actually spur growth via infrastructure spending and tax cuts. Such growth should gradually push the Fed toward interest-rate normalization.

“The outlook for select equity sectors may also be positive,” Janus wrote. “The increased infrastructure spending promised by Mr. Trump will benefit the industrials sector. We are also moderately bullish on the financials sector and anticipate that regulations in the sector could loosen at the margins.”

Janus also predicted that the energy and health care sectors would benefit from a Trump presidency, but did not believe that all of Trump’s calls for reform would be successful.

“We do not believe that Mr. Trump’s campaign promise to abolish the Affordable Care Act will be feasible,” Janus wrote.

Siomades disagrees, saying that Obamacare as we know it is doomed and the health-care sector will be pressured well into the next year as a replacement plan materializes.