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Market Volatility and the Trump Election

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The American people have spoken.

2016 has certainly been a year of surprises. Brexit caught politicians, and most of the U.K., on the hop and only a few weeks ago the idea of a President Trump didn’t seem likely. Perhaps after Brexit we should have seen this coming as, a desire for change, and a move away from the old establishment, has prevailed on both sides of the pond.

The U.S. is now of course in uncharted waters. We have a relative newcomer in the world of politics in charge of the most influential nation in the world. One who has not shied away from shooting from the hip. President Trump will have the luxury of a majority in both the Senate and the House and, while we are not quite sure where this political roller coaster could take us, it is likely to be a hell of a ride.

Unsurprisingly the message is that markets and currencies are likely to be volatile. That said, there have not to date been any wild movements. Perhaps the markets have learnt from Brexit, where after a sharp short-term fall markets recovered within a few weeks. What will a Trump presidency mean for the U.K.? The answer as far as the long term is concerned is that we just don’t know what the effect will be on pensions. The ramifications will start to become clearer over the coming months and years. But for now, and some time to come, employers and trustees should avoid knee-jerk reactions and plan for the long term.

In the short term the main implications for pension schemes are investment-related. In the immediate aftermath of the decision we are likely to see some volatility in all markets, which were not expecting a Trump victory. Investors should be mindful that heightened volatility can often lead to reduced liquidity, wider dealing spreads, and higher transaction costs.

100_square_CS5David can be reached at david.piltz@xerox.com.

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