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Twelve months ago, Emmanuel Macron was a relatively unknown minister of the economy and upon announcing his candidacy for president in November was expected to garner no more than 5% support from the French electorate. Today he is the next president of France after winning nearly two-thirds of the vote. Macron is clearly a centrist and his demeanor after winning the presidency is one of positivity and cohesion with a pledge to heal the sharp rifts in French society. If all of this sounds a bit mundane, it is important to note the more radical aspects of his victory. His political party, En Marche, was created just 13 months ago and he is France's youngest ever head of state. While he worked in previous administrations, he has never held public office and pledges that at least half of the En Marche parliamentary candidates will also not be experienced politicians. As a result, the incumbent parties have been largely removed from power, with the Socialists unlikely to represent more than 5% of the legislature despite holding the presidency since 2012.

Macron’s greatest near-term challenge will be to win control of parliament. If he cannot secure a majority, his power could be severely limited. Marine Le Pen has pledged to shift her fight to the legislative elections, and with at least five parties vying for 577 seats, a “hung” parliament is a possibility. Parliamentary election risks remain for Macron given that he still faces an angry populace battered by stagnation, high unemployment, terror attacks and a refugee crisis. LePen’s National Front (FN) party did garner a record high 11 million votes. If, along with other anti-European parties, the FN can gain over 20% of the National Assembly, the lower house of parliament, the French constitution would allow them to use the referendum process to call for a public vote on laws such as leaving the European Union (EU) or restricting immigration.

"More political alignment and stability in Europe would allow meaningful progress on shoring up the beleaguered banking system."

Macron’s economic agenda is a blend of supply side, government incentive, social and environmental proposals. Most important from an economic standpoint are the reforms designed to make the labor market more flexible and increase productivity. He also calls for a meaningful reduction in corporate and individual taxes oriented towards the low income earners and small businesses. To also deliver a modest decrease in the public deficit by 2022, he proposes a 120,000 reduction in civil service jobs and a small environmental tax. Macron also plans to support the construction sector by eliminating the local housing tax for the bottom 80% of households and not raise the wealth tax on real estate. He also is proposing incentives for energy-saving home renovations. Given already improving economic activity, Macron is likely to find strong support for his pro-growth agenda in the French legislature, business community and wider EU.

Reform-minded, pragmatic and pro-European, Macron is likely to be viewed favorably in Germany and encourage greater cooperation toward a closer and more dynamic EU. This comes at a time when stronger economic growth in much of Europe is increasing the odds that Angela Merkel and other moderate supporters of the European project retain power. Clearly, the electorate has spoken loudly to the frustration with EU leadership in Brussels, but the largest improvement in economic sentiment in nearly a decade has led to a shift in tone. The new approach is to improve and reform Europe from the inside rather than by a disruptive break up.

The outcome of the election was widely expected and it was not surprising to see short-term-oriented traders take profits from gains enjoyed after the first-round vote. Also, most investors remain wary of Europe with concerns quickly shifting to elections in Italy and Germany along with next month’s parliamentary contests in France. Overall, however, concern about political risk is receding from 20-year highs as measured by the Societe Generale Policy Uncertainty Index. This should shift investor’s focus to the broadening economic recovery in Europe and steady but uneven improvement in the region’s banking system. Outside of banks, domestically oriented and smaller French company shares stand to significantly benefit from corporate tax reductions and labor market reforms.

"Macron is likely to find strong support for his pro-growth agenda in the French legislature, business community and wider EU."

Other “Club Med” countries should also benefit from the outcome of the French election and subsequent pro-business legislative agenda. More political alignment and stability in Europe would allow meaningful progress on shoring up the beleaguered banking system. Also, as a market strategist notes, reforms in the peripheral nations will make Germany more inclined to support fiscal spending and a loosening of regulation.

In France and throughout Europe, the sectors dependent on domestic demand are well positioned to benefit from the recent election of pro-growth moderates. This includes companies in the construction, housing, aerospace, travel, leisure, IT services, media, advertising, consumer goods and temporary employment industries.

Not widely discussed but potentially important is the effect of a stronger and more aligned Europe on Brexit negotiations. Based on current trends, Continental Europe’s economy is likely to expand at a faster pace than the United Kingdom this year and possibly into 2018. This could lead to a shift in sentiment toward the benefits of leaving the EU among the newly elected conservative MPs and the British citizens. Upon greater reflection, the case for a “soft Brexit” could become the most likely path.