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The future of the FTSE 100 after Trump win

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The FTSE 100 fell by as much as 118 points, following Donald Trump’s historic election victory, but quickly recovered and is now at much the same level as yesterday’s close.

Certainly, most investors are likely to be surprised at the lack of a large fall in the FTSE 100’s price level. That’s especially the case after Asian markets were a sea of red this morning, which made a fall of a similar nature seem likely for the FTSE 100. However, so far at least, investors seem to be somewhat uncertain about how a Trump Presidency will affect the FTSE 100.

A period of uncertainty

In the short run, it would be unsurprising for the FTSE 100 to fall further. Trump is an unknown quantity in many ways. He may deliver on all of his campaign pledges, or may seek to dilute some of the promises he made. Either way, the FTSE 100 is in for a period of uncertainty between now and January, when Trump will take office. And with investors generally being averse to uncertainty, it would unsurprising for the FTSE 100 to shed a few hundred points over the coming weeks.

However, the scale of the fall in the short run may not be as great as some investors are predicting. Trump was seen by many Americans as the preferable candidate when it came to the economy. Whether this is accurate or not, the perception among investors could be that Trump may not be bad for the US economy. His desire to reduce regulation and rebuild infrastructure could improve the economic outlook for the US. And with a US interest rate rise now less likely in December, due to the political uncertainty which the country now faces, the FTSE 100’s performance in the near term may be better than many investors currently predict.

Take the long view

Beyond January, though, is likely to be a difficult period for the FTSE 100. Once Trump takes office, uncertainty surrounding his policies is likely to increase and this could cause a larger fall in the index’s price level. How long this lasts for will be difficult to judge, since it largely depends on how Trump’s policies impact world GDP growth. As mentioned, he may or may not decide to follow through with his campaign pledges and until more clarity is provided in this space, it is difficult to judge in which direction the FTSE 100 will move.

One thing is almost guaranteed, though. The FTSE 100 will be highly volatile in the short run, which could make life difficult for short term investors. But for investors seeking to buy and hold for a number of years, the reality is that the FTSE 100 is likely to move higher in the long run. Therefore, buying stocks in the coming months could prove to be a good idea, even if it may result in paper losses in the near term.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.