The surprise

Sometimes surprises happen. Oil prices collapsing 70% in a few months. Crazy Brits voting themselves off the island during Brexit. Millions of deplorables electing a reality TV star misogynist billionaire to be president. Then the stock market thinking he’s catnip.

If you’ve got investments, surprises matter. Over-react, and risk making a big mistake – because the unexpected has a way of becoming the new normal.

On Friday, the latest surprise. Donald Trump, the firebrand, rebel, strongman populist, is turning into a lame duck barely 90 days after storming into the White House. He already had an impact on Canadian investors this week – responsible for a tepid budget that backed off new eat-the-rich taxes – and now more’s coming.

Late in the afternoon, at the instruction of the Prez, Republicans pulled their signature bill from a scheduled vote in Congress. It would have repealed and replaced Obamacare – one of the signature issues Trump campaigned on. The reason? It wouldn’t pass. Despite his own party controlling both the House and the Senate, and despite his personal bullying and threats to legislators that they will lose their seats if they defy him, it died. “I won’t sugarcoat this,” speaker and Trump ally Paul Ryan said, “it’s disappointing.”

For weeks Republican politicians have faced town hall meetings stuffed with angry, scared voters terrified they’ll lose health care. Since it was passed, Obamacare, as imperfect as it is, has resulted in the lowest number of people ever (under 11%) being without coverage. It’s now clear the balance of power has shifted for those politicians – from the president and leader of their party to the voters they answer to.

It’s a big deal. Stock markets were watching this vote closely. Losing it means Trump may have a far harder time doing the stuff he wants – like slashing corporate taxes, reducing regulations and spending megabucks on infrastructure. It was exactly those actions which investors felt would expand the economy and boost profits – so they ran up stock values more than 9% in anticipation. Meanwhile the Fed, also believing Trump, as well as looking at growing economic strength, smelled inflation and pushed ahead with another interest rate hike. As a result, stocks soared, bonds slumped and yields plumped.

Meanwhile, Trump stumbles. The FBI has launched an investigation into his campaign’s ties with Russia. His Muslim travel ban was ridiculed and killed. His ‘America First’ budget fattening the military and starving the environment, arts and social spending was dead upon arrival. There’s no evidence to support his claims three million people voted illegally or Barack Obama ordered a wiretap on him. Last week he insulted Germany and his secretary of state shunned NATO. The man is an unpredictable tangle of ego, bravado and well-aged testosterone.

Now he’s losing support where it matters most – in Congress. Without that, he has no agenda. Just tweets. The rebuke on Friday was sharp and decisive, made all the more poignant because it was his first real attempt to turn crusade into law. This defeat also calls into question the man’s status as a grand deal-maker – again making investors question whether or not he can slash corporate taxes, impose a far-reaching border tax, build a 2,000-mile-long, 30-foot wall or resurrect faulty bridges and aging airports.

So what now?

Time will tell, but there’s a good argument for saying the Trump Bump on Wall Street could deflate in the next few trading sessions. It’s been a long time since markets took a 10% dip, but they may be ready to give back much of the ground gained since the November election. Beyond that potential correction, investors will probably be putting more faith in fundamentals, like profits and labour stats, than in one man. The US economy is strong, stable and trustworthy. Everything the leader is not.

This is why a balanced and diversified portfolio works. It’s designed to blunt surprises and protect as markets decline. When the growth assets fall, the safe ones rise. And meanwhile you own stuff that pays, rain or shine.

Investing is not gambling. Preserving capital is equal to growing it. Chasing the latest hot thing – whether it’s US equities or a trendy semi – is asking for heartache. The best surprise is one you can ignore. There are many coming.