Americans throughout the country are feeling a variety of emotions with the election of President Donald Trump, and financial experts are advising us to prepare for volatility in the investment markets due to the uncertainties ahead. It is helpful to remember that these market gyrations are almost always bad times to trade, and particularly to sell. Traders and analysts have plenty of time to settle down between now and the first 100 days of the Trump presidency. The safest bet you can make is that they’ll be unusually jumpy for the next four years. But in the end, the intrinsic value of stocks don’t change with the occupant of the White House.
One of the more interesting things to watch out for is a tax reform proposal in early 2017. On the campaign trail, candidate Trump proposed simplifying our taxes down to three ordinary income tax brackets: 12% (up to $75,000 for joint filers), 25% ($75,000 to $225,000) and 33% (above $225,000). The wish list includes doubling the standard deduction with itemized deductions capped at $100,000 for single filers; $200,000 for joint filers. Capital gains taxes would be capped at 20%, federal estate and gift taxes would be eliminated, and the step-up in basis would be eliminated for estates over $10 million.
However, one should remember that these proposals were made before anyone imagined that Americans would elect an undivided government, with the Presidency and both chambers of Congress all under Republican control. The next four years, especially the first 100 days of the new Presidency, represent an opportunity for the Republican Party to do something much more ambitious than simply tinker with our nation’s tax rules. Influential Republican leaders, including House Speaker Paul Ryan, have reportedly been planning for some years to rewrite our nation’s tax code.
What, exactly, would that tax reform look like? At this point, we simply don’t know. The goal would be tax simplification, but the bet here is that whatever form the tax reform proposal takes will add thousands of pages to the current law.
The other change we’re about to see is nowhere written in the policies and proposals of Candidate Trump, but is even more certain than tax reform. President Trump is unlikely to support the DOL’s fiduciary initiative. There is a chance that the newly-appointed Republican head of the Department of Labor could potentially unravel the work of eight long years, and we can expect a new SEC commissioner to be more sympathetic to Wall Street code words like “harmonization” and “level playing field” than a strict fiduciary standard for asset gatherers and sales people.
Of course, everything is speculation at this point, which is the most important thing to keep in mind as the markets roil and the shock and awe of the unexpected election outcome begins to sink in and cooler heads prevail. The very worst thing you could do, over the next few days and weeks, is make a temporary loss permanent by selling into the general panic.