It is now apparent, having voted Donald Trump in as the next American president, that U.S. voters wanted change. They have certainly got it.
While I readily admit to a certain degree of shock at the result, and have some concerns about President-elect Trump’s suitability for the role as a person, my interest professionally has to be in how markets will react to his looming presidency.
Initially, it appeared to be badly. Overnight (as at the time of writing 10 November), futures contracts on the S&P 500 and Dow Jones Industrial Average were down 4.7% and 5.0% respectively. Japan’s Nikkei 225 index was down 6.2% and the UK’s FTSE 100 2.2%. The S&P/NZX 50 closed the day down 3.3% and the S&P/ASX 200 Index was down 1.9%.
Since these lows, for Sharemarkets that remained open or have since reopened, these losses have been either pared back and in some cases reversed. As at the time of writing, the S&P 500 was down just 0.1%, while the Dow Jones was up 1.4%. The UK’s FTSE 100 was positive 0.4%. The S&P/NZX 50 had wiped out all of its losses by the time of writing. The Nikkei 225 and S&P/ASX 200 Indices had not yet opened.
On the fixed interest side, long-term interest rates look set to increase. The 10-year U.S. Treasury yield increased from 1.86% to 1.95% overnight. Long term interest rates increasing, from the current low levels at any rate, can be seen as a sign of confidence in the future direction of an economy as it signals an expectation of future inflation which in the current environment requires some growth.
While there was an immediate negative reaction to the signs of a Trump win in markets, they seem to have recovered quickly. This is unlikely to be one way traffic, as we saw following Brexit, we may have both swings and roundabouts. We may well be in store for some sharemarket volatility as markets react to snippets of information leaking out from Trump’s camp during the final days of Obama’s presidency.
We don’t see the outcome of this election having a long term impact on markets.
As always, we remind investors that reacting to short term news is not a good way to invest. The most prudent course of action is always to stick to a long term investment strategy.
The writer acknowledges Russell Investments as a source for the above.