Trump Election Victory and the Markets

Before the election, the wide spectre of global financial and investment markets priced in Hillary Clinton’s presidential victory. On Tuesday, November 8, the U.S. and emerging markets stocks generally were up, emerging market currencies, like the Mexican peso, were up, and oil prices were down. All this was caused by the expectations of status quo in American policies – no sharp increases in the interest rate, continuance of current trade policies and ongoing shift of focus to alternative energy sources.

Donald Trump’s shocking win was supposed to turn all those trends in opposite directions. His aversion to the Fed’s current policies and his large infrastructural plans are considered expensive for the federal budget, and hence were expected to be damaging for the U.S. dollar. His attacks on Wall Street during the campaign indicated the threat he posed to market makers and participants. The Mexican peso has been particularly sensitive to Trump’s successes during this campaign.

Some trends early on Wednesday morning confirmed those expectations: Dow Jones Industrial Average futures dropped by over 800 points and S&P 500 and Nasdaq futures were halted, tripping circuit breakers, when it first became evident that Trump would be elected President.  Alternative energy stocks traded much lower in early hours, while Trump’s promise to repeal Obamacare saw health insurance and healthcare facility stocks deteriorate but pharmaceutical stocks rose – a complete reversal of the trends before voting began.

As trading opened on November 9, the Trump effect became considerably muted. The broad market indices were mostly flat and oil did not feel any particular boost coming from Donald Trump’s victory. The Mexican peso was most affected – it dropped sharply from 18.3 pesos per US dollar to 20.7 pesos per US dollar, but then settled at about 20 pesos per dollar later in the morning.  It appears as the markets are taking a “wait-and-see” approach to Trump’s victory.