Some Long-Term Positives for Financials Amid Election
Volatility will be a negative for some traditional asset managers, while investment banks and exchanges should benefit from higher trading levels.
Donald Trump's unexpected presidential victory in the U.S. has certainly surprised the global financial markets, and we expect a fair amount of volatility in stock, bond, and currency markets (particularly the Mexican peso). While Trump's campaign rhetoric has lacked detail, some common themes provide insight into what kind of financial and economic policies his administration might pursue. Broadly, the potential for both short- and long-term stock, bond, and currency market volatility should be viewed as a negative for traditional asset managers like BlackRock (BLK) and T. Rowe Price, (TROW) but the potential for the Department of Labor's fiduciary rule to be watered down in a Trump presidency should be seen as a positive for active managers (which is already being reflected in the Nov. 9 stock prices). This same volatility should be a positive for investment banks and exchanges such as Goldman Sachs, (GS) Intercontinental Exchange, (ICE) and CME Group, (CME) because they benefit from higher trading levels. From a banking system perspective, we rate the U.S. banking system as fair, one step above poor, and that political stability is a key supporting pillar for our fair rating. While Trump's victory may have been a surprise to the markets, we do not expect the transition from an Obama administration to a Trump administration to be particularly difficult, as our political assessment of the U.S. from a banking system perspective is based on the quality of its institutions, its ability to obtain a fair election result, and its respect for the rule of law versus the divisiveness of the campaign. There is also the potential for regulation of the banking system to be lessened, reducing regulatory compliance costs as well as easing future bank capital rules. We expect to be taking a hard look at our coverage over the next couple of days to ensure that our long-term assumptions reflect any potential changes to the operating and competitive dynamics of the financial services industries.
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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.