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[The US Capitol building. A businessman looking through documents. The Toronto Stock Exchange building. Lettering on a building wall reading “Stock Exchange”. The Toronto city skyline featuring the CN Tower. The White House. A US voting location with voting booths with a sign on their side reading “Vote”. Signage hanging in a room reading: “VOTE REPUBLICAN” and “SUPPORT REPUBLICAN CANDIDATES - SIGN HERE. A city skyline. The White House.]

Avery Shenfeld >> There are so few areas of US public policy that won't have some implication for Canadian assets and for Canadian investors, that it's worth taking a deep dive into what this US election result, and the election of a Republican president, might mean for investors here in Canada.

 

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[What a Trump Presidency means for the Canadian economy]

 

[Expert Access featuring Avery Shenfeld]

 

[Avery Shenfeld

Chief Economist

CIBC World Markets Inc.]

 

[Avery Shenfeld, an adult male wearing a suit, is seated in an office environment and addressing the camera.]

 

If you look at how markets reacted in the lead up to this election, and with the resolution of a Trump victory, you saw that this was generally positive for equities, but particularly U.S. equities.

[The Wall Street street sign. A financial district. A boardroom building with several businesspeople. A businessman holding a pen, scanning through a document.]

 We've seen stocks rally in the U.S. in the hope of a lighter regulatory hand, for example. And perhaps in the hopes of some corporate tax reductions or at least lower corporate tax rates than under the Democrats. But we've also seen bond yields move up. So, bond prices have been falling. Long-term interest rates have been pushed up by concerns about future budget deficits being higher, with tax cuts coming, and therefore, more borrowing from the US Treasury and some upward pressure on yields.

[The US Treasury Department building. A sign on a building wall reading “THE DEPARTMENT OF THE TREASURY - 1789”. A downtown commercial district. A historical business-district building in Seville. A downtown cityscape at night.]

Around the world, there have been other equity markets where we've seen some negative impacts on the fear of trade barriers. So, a bit of a mixed reaction overall, if we look from a global perspective.

[Economic outlook: inflation and interest rates]

Ironically, because even though there are so many policy levers that could potentially be pulled one way or another as a result of this election, our forecasts for economic growth really aren't that much changed.

[The US Capitol building. Skyscrapers in a financial district with several Canada flags hanging from a building. The US Federal Reserve building. The Bank of Canada building. A cargo train filled with cargo driving on a railway. A vast rural area.]

Because we're at the stage of the business cycle in both the US and Canada, where inflation has been coming down and the job of central banks is to deliver enough interest rate cuts to accelerate economic growth in Canada and get us back to full employment, and prevent more of a slowdown in the US if trade barriers go up and that ends up stalling Canadian economic growth and threatening our export sector, we'll need even more interest rate relief here in Canada to get that pickup in economic growth to a roughly 2% pace in the next couple of years.

[A large bridge in an urban area. Two large highway bridges traversing a river in a lightly populated area. An urban shipping port. A cargo ship full of shipping containers. A riverside financial district with a Canadian flag hanging from a building. A busy shipping yard. A plot of land under development in a rural area.]

In the US, we do expect growth to slow to again, a little over 2%. And we won't see as many interest rate cuts in the U.S. given their stronger starting point.

[How policy changes can impact the markets]

US equity market might face some challenges and moving a lot higher from here, because we have seen a lot of positive sentiment built into where equity prices already are.

[A grocery store worker changing the price of items on a shelf. An adult woman shopping in a grocery store. An adult woman standing in beside a shopping cart reading the items on a long grocery store receipt.]

And the reality is that the US economy is going to slow a bit from what we've been seeing, not only because we'll need that to keep inflation under control, but also because the Trump administration plans to dramatically lower the pace of population growth, fewer immigrants coming in.

[The White House. The interior of the Oval Office. A timelapse of many pedestrians disembarking from escalators. An urban commercial district. Multiple cars in queue at a busy border crossing. A sign on a building reading “U.S. CUSTOMS and BORDER PROTECTION.” A deserted downtown commercial district.]

And that actually lowers the speed limit for the US economy in the next couple of years. In Canada's case, it's a mixed picture for equities. There are certainly some sectors that could benefit from these policy changes.

[Several oil derricks pumping in a rural area. A transport train rushing down a railway. A vast mining pit.]

The US might, for example, be more amenable to oil imports, more interested in imports of uranium if they develop their nuclear energy, but also some concerns, at least overhanging Canadian export sectors in general from the threat of higher tariffs.

[A bunch of nuclear cooling rods. A large nuclear turbine. A nuclear power plant.]

We saw that really dent Canadian steel exports during Trump's first term.

[A mining area.]

Whether those tariffs are going to come back across the economy as a whole, I think there's going to be some uncertainty and some hesitation. At least until we clarify whether Canada is able to negotiate an extension of our free trade deal with the U.S. and Mexico.

[A large, columned building with Canada flags hanging from it. A disconnected border bridge with a US flag hanging on one side and a Canadian flag hanging on the other. A large bridge crossing a wide river, with Canadian flags hanging from many poles in the foreground.]

So, some potentially bumpy roads ahead, we're hoping that deficits don't rise as much as markets are thinking in the US.

[The interior of the US Capitol building. Empty seats in a large auditorium.]

 That Congress insists on some spending reductions or spending restraint, at least. Long-term interest rates, which moved up on the election result, could come down a little bit.

Certainly, here in Canada, we expect short-term interest rates to be coming down as the Bank of Canada delivers more relief to an economy that does need it right now.

[The Canada Parliament Building.]

[Key takeaways for investors]

Given all the uncertainties we face over U.S. economic policy in the next couple of years, and the material implications that we'll have for our currency, our equity markets, our interest rates, a diversified portfolio, make sense in an uncertain world.

[A close-up of a Canadian $100 bill. The Toronto Stock Exchange building. A downtown commercial district. A person swiping through market data on a phone screen. An adult woman smiling as she looks at a tablet.]

 And certainly, this election and the wide array of policy changes that it could entail, makes the benefit of a diversified portfolio, all that much more beneficial for the average investor.

 

[This video is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this video should consult with his or her advisor. All opinions and estimates expressed in this video are as of the date of publication unless otherwise indicated, and are subject to change.

 

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