In the early hours of November 9, 2016, Donald Trump was elected the 45th President of the United States. The win defied the expectations of analysts and pollsters who predicted a win for Democratic Party nominee Hillary Clinton. The familiar refrain, “The stock markets hate uncertainty” rang true as markets around the world responded with a tailspin. But since that initial sell-off, as the dust has begun to settle and investors start to process a new reality, the markets have rebounded. Here’s a look at what we’ve seen so far.
President-elect Trump’s “America first” rhetoric has been good for the dollar so far. On Monday after the election, the U.S. dollar hit an 11-month peak against a basket of currencies.
Currencies in emerging markets such as the Mexican peso and Malaysian ringgit fell to new lows. The euro slid to its lowest level against the dollar since January 2016, and the Chinese yen was at its weakest since June. Throughout his campaign, Trump was critical of China and other countries whose trade practices, he says, undercut U.S. manufacturing and jobs.
The S&P 500, while generally robust, remains in negative territory due to a drop in the biggest tech companies. Trump’s anti-immigration stance is predicted to be a big problem for tech companies. The tech sector attracts a lot of foreign workers due to the H1-B visa program. Some of the largest tech giants including Apple (AAPL), Amazon (AMZN), Facebook and Alphabet fell after last week’s election. The tech sector is one of the most important industries in the U.S., so an adversarial relationship between tech and Trump could spell bad news for the market and the economy.
However, the S&P 500 bank index reached its highest level since March of 2008 as investors anticipated looser regulations and consumer protections for the financial sector.
A Republican in the White House and a Republican-controlled Congress may pave the way for passage of a bill that will lead to more infrastructure spending. That optimism led the Dow Jones Industrial Average to its best week in five years, led by financial stocks.
Less regulation for healthcare companies could also mean a boost for big pharma such as Merck (MRK) and Pfizer (PFE). Those stocks have also rallied sharply in the past week.
Treasury prices tumbled based on expectations that Trump’s tax cuts and increased infrastructure spending will stimulate the economy. Yields on 10-Year Treasury notes reached their highest point in nearly a year, while 30-year paper rose increased by 0.07 basis points, its largest four-day gain since May of 2009.
Expectations of higher federal government spending on infrastructure, faster U.S. growth and inflation led investors to dump bonds in favor of stocks. Over the course of two days, more than $1 trillion was wiped out across global bond markets worldwide. Many investors bet that a Trump administration will boost business spending while stimulating inflation.
Looking to the Future
While the stock market seems optimistic about a Trump presidency, many market strategists have expressed concern that investors are underestimating the possibility of more market shake-ups. Trump remains a highly unpredictable leader. While his tone since the election has been conciliatory, his many position changes and continued social media outbursts leave questions about how aggressively he will pursue his economic agenda. Investors may be wise to take a step back and remember that Trump’s policies, and his ability to enact policy change, are still very much unknown.
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