J.P. Morgan - Special Bulletin

NOVEMBER 9, 2016

A Trump Victory and a
Republican Sweep: What
Investors May Expect Next

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SUMMARY

-- Early Wednesday morning, Donald J. Trump was elected the 45th President of
the United States. The Republican Party also retained control of Congress which
provides them with one-party rule for at least the next two years.
hh As the outcome became more evident, overseas markets sold off sharply, as did
futures in the U.S. Currency and commodity markets were also volatile. Many
indices rebounded slightly after President-elect Trump’s conciliatory acceptance
speech.

-- Here is what investors may expect as Trump begins to form his cabinet and enact
a legislative and policy agenda that has shifted over the many months of the
Presidential campaign.

--With concerns about global trade due to the imposition of tariffs on trading
partners such as China and Mexico, the consensus is that global economic growth
could slow (over the near-term), with declining oil and rising gold prices.

--We would expect further short-term weakness in both the Mexican peso and
Canadian dollar as foreign exchange markets price in the odds that the U.S. will
seek to renegotiate the existing NAFTA trade agreement, which covers trade
between the U.S., Canada and Mexico.

--In credit markets, we are likely to see a more muted response, although concerns
about a surge in the U.S. deficit, provided all of Trump‘s tax cuts are enacted,
could put upward pressure on long-term U.S. Treasury yields.

-- Seeing that the House and Senate have a healthy representation of both
Democrats and Republicans who represent the “older establishment” strongly
suggests that markets should see greater “prudence” than was signaled during
the heat of the election campaign.

-- Finally, investors should not forget that the GOP agenda included several promarket
reforms on corporate taxes, deregulation, entitlement reform and modest
fiscal spending that should be met favorably by U.S. and global financial markets.

Is there a difference between how markets react over the near
and long term?

-- Yes, this distinction is important because in every Presidential campaign in
modern history, the message on the campaign trail has rarely matched the reality
of what investors have seen long after the party horns and hats have been put
aside.

-- Nonetheless, since many have asked how markets could react in the near-term,
we will do a deeper dive into a few U.S. equity sectors and how J.P. Morgan‘s
Private Bank believes they might react in light of what we heard during the
campaign.

Which equity sectors are likely to benefit from today’s
election results?

-- We see potential opportunities in three areas — energy, financials and industrials,
particularly within infrastructure and defense.

-- The energy sector would benefit from the President-elect’s proclivity toward
traditional energy sources rather than generating power from renewables.

-- With less emphasis on regulation, the financial sector is likely to gain some relief
on the regulatory front.

-- The emphasis on bringing renewed strength and respect for the United States
may suggest that boosts in military spending are likely to come.

-- And finally, the pledge to upgrade U.S. infrastructure should mean that the
industrial sector will experience increased demands from the U.S. government as
it seeks to implement this goal.

Which sectors may suffer some setbacks?

-- Our Private Bank reports that with threats to repeal or scale back the Affordable
Care Act, the health care sector may have to adjust to a new environment. This
may be especially true for hospitals that may see fewer patients if the current
legislation is greatly overhauled.

-- The renewable energy sector may be less favored, leading to lower production
through renewable means.

-- More broadly, companies trading with NAFTA countries (Mexico and Canada)
and/or China may experience some short-run uncertainty until it becomes clear
what type of trade agreements or policies will be revamped.

LOOKING AHEAD

-- We expect U.S. economic growth to rise slightly to about 2.0% from this year’s
pace of 1.6%. Hopefully, we will see some additional fiscal stimulus resulting from
increased defense infrastructure spending. Any resulting increase to the deficit
should not have a significant impact on our $18 trillion economy other than to
slightly reduce the risk of a recession.

-- Although financial markets may experience a jolt until they gain a better grasp of
actual policies moving forward, we believe the path that markets took following
the Brexit outcome may serve as a reasonable blueprint for what investors could
expect in the short run.

-- We remain optimistic about the durability of the current economic recovery that
has now enjoyed 73 consecutive months of non-farm payroll job gains and has
registered a total increase of 13.9 million jobs since the inception of the current
expansion in June 2009.

-- In another sign of healthy growth for the U.S. economy, auto sales grew at
an annualized sales pace of 18.02 million vehicles (fueled in part by increased
incentives) which represents its best sales pace observed since November 2015.
hhWe also expect that the Fed will alter its interest rate path to offset any negative
market reaction to the election if such reactions were to persist.

-- Finally, we continue to encourage our clients to pursue diversification in their core
portfolios. We maintain that clients should stay invested and focus on their long term
goals.

___________________________________________________________________________________________________________________________

ANTHONY CHAN, PHD CHIEF ECONOMIST
FOR CHASE
Anthony is a member of
the J.P. Morgan Global
Investment Committee.
He travels extensively to
meet with Chase clients
and share the economic
and investment insights
of J.P. Morgan. Anthony
is also a frequent guest
on CNBC and other
financial news outlets,
and is widely quoted in
the financial press.
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Not all investment ideas referenced are suitable for all investors. Investing involves market risk, including the possible loss
of principal. There is no guarantee that investment objectives will be reached.
Opinions and estimates offered constitute our judgment as of the date of this material and are subject to change without
notice, as are statements of financial market trends, which are based on current market conditions. We believe the
information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an
offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described herein may
not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to
provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises
or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative
purposes only and are not to be relied upon as advice or interpreted as a recommendation.
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© 2016 JPMorgan Chase & Co.

Expect Trumpery and the Republicans, by the end of 2017, to take credit for this recovery.
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-- We remain optimistic about the durability of the current economic recovery that
has now enjoyed 73 consecutive months of non-farm payroll job gains and has
registered a total increase of 13.9 million jobs since the inception of the current
expansion in June 2009.