New York, New York — Weeks after the American presidential election on Tuesday, November 8, 2016, the U.S. stock market remains high, with investors seeming optimistic about President-elect Donald Trump. According to an economy and finance reporter for the New York Times, Landon Thomas, Jr.,
“The initial reaction Tuesday into Wednesday was shock. As the realization worked its way around the planet that Mr. Trump would become the next president of the United States, global investors tried to make sense of the financial and economic implications, putting markets on edge”.
But as investors accepted the reality of Trump’s victory, the markets began to rise. According to the New York Times, “Some are convinced that a new Trump administration will keep stocks soaring, while others fear it may send the economy over a cliff”.
Here are the 5 Fast Facts you should know:
1The Markets Plunged Immediately After Trump’s Victory
Hillary Clinton had been expected to win the American presidential election on Tuesday November 8, and the idea of the Donald J. Trump as president apparently came as a shock to many investors, particularly in the Pacific Rim. Meanwhile, investors around the world wondered if Trump’s policies would result in growth or decline for the global economy. This is probably why, late on election night on Tuesday, and early the following Wednesday morning, there was a pronounced stock sell-off in Asia, where the markets were open. Futures for Standard & Poor’s 500-stock index plunged 5 percent.
2The Markets Quickly Bounced Back
Many losses were recovered by the time stock markets opened Wednesday morning in the United States following the election. Investors quickly got over Trump’s surprise victory, and the stock markets recovered. Major market indicators were up over 1 percent by the time trading ended in the U.S. Analysts say the recovery reflected feelings among many investors that Trump will cut taxes and ease financial regulations.
Investors apparently believe that these benefits will more than counterbalance his perceived position against global trade. For these reasons, certain stocks were in great demand on Wednesday. These included shares that benefit from strong fiscal growth, such as banks and companies linked to infrastructure and transportation. For example, Bank of America’ shares were up 5.7 percent by closing time on Wednesday. And United Rentals, the world’s largest equipment rental company with over 880 rental locations throughout the United States and Canada, was up 17 percent.
3Analysts See Trump’s Victory as a Stimulus for Economic Growth
Stock market analysts believe the victory of Donald Trump in the U.S. presidential election is a sign from Middle America that “the time [has] come for fiscal policy in the form of increased government spending to replace central bank activism as a means to stimulate economic growth”, says Landon Thomas, Jr., economy and finance reporter for the New York Times.
Jurrien Timmer, a market strategist with mutual fund giant Fidelity Investments, agrees. “This was a political uprising”, he observes. He elaborates, “Monetary policy has been part of the problem, in that the wealth effect has not accrued equally. If the baton is passed toward fiscal policy, that would mean higher inflation and lead to a rotation toward cyclical stocks such as financials”.
4Some See the Stock Surge as a Reaction to Obama
The year 2016 got off to a bad start, in terms of stock performance. The Dow Jones industrial average fell by 6 percent, which was its worst-ever recorded start to a new year. During the month of January, the Dow fell 5.5 percent, making it the worst January since the 2009 financial crisis. This trend foretold financial disaster in the minds of many market analysts. “As January goes, so goes the entire market year” is a popular saying among investors and other market-watchers. But investors are thrilled with the recent surge, and some analysts see it as a reaction to the failure of full economic recovery under President Obama.
Justin Gest is a public policy expert and author, whose recent book analyzes alienation among the working class in both the U.S. and the U.K. As he puts it, “The economic recovery under President Obama never reached deep enough—it did not bring working-class people up”. He elaborates, “The nature of the economy that Wall Street and corporate America has promoted reflects the gaping inequality in this country”.
5Many View the Post-Election Stock Rally with Caution
Many analysts fear the downsides of the tax cuts, looser regulations, and increased government spending on highways, bridges, and roads that are expected in the Trump administration. While such things may help the economy overall, they could also lead to high deficits and increased debt. In addition, Trump’s anti-global-trade attitude is sparking fears of a trade war.
Protectionism in various countries is already causing global trade to suffer, and such a war could be disastrous for the economy. Schwab Investments specialist Jeffrey Kleintop explains, “The worry is that Mr. Trump would follow through on his promise to raise tariffs on China and Mexico”. This concern is why, in spite of the stock market rally in recent week, currencies and stock markets in emerging markets were down.
For example, Mexico’s peso fell 8 percent against the dollar, while Chinese currency was also weak. Analysts say China could be pushing its money values lower as a way to help exports before Trump assumes office. For now, however, the American stock markets, at least, are viewing the Trump victory positively.