Wall Street Embraces Trump Victory
The global markets were in free fall on election night as it became more and more apparent that the 45th President of the United States would be Donald J. Trump. At one point, Dow Jones futures spiraled more than 800 points, much more than the 684-point drop it experienced immediately following the events of 9/11.
This wasn’t a huge surprise. Analysts had predicted that a Trump victory would lead to a 10% to 50% drop on the S&P 500. A Clinton victory on the other hand would translate into a two to three percent bump.
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“Trumpocalpyse” didn’t last long. In fact, it didn’t really happen. The global markets calmed down a little after Trump gave an inclusive and surprisingly “presidential” victory speech. Having ascended to presidency, this is the first time Trump has acted the part since he descended the Trump tower escalator back on June 16, 2015.
By the time the markets opened in the U.S., all was calm. There was no calamitous plunge in equities, gold did not soar, and the U.S. dollar rebounded. It was quite the opposite, in fact. The Dow Jones rebounded and hit a record intra-day high of 18,650 and closed at 18,589.69, a whisker off its all-time record close of 18,636.05 which was set this past August.
Uncertainty Around Fate of U.S. Economy Remains
However, this doesn’t mean Wall Street or retail investors can expect clear sailing. There remains a lot of prolonged uncertainty about what a Trump presidency will look like.
Had Clinton won, investors know she would have maintained the status quo. Trump on the other hand, has pledged to tear up or renegotiate international trade agreements, including the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership Agreement (TPPA).
Doing either, many contest, could stall fragile global growth. After all, protectionism does not bode well for imports or exports. Trump also calls for “yuge” tax cuts that many economists believe would seriously increase the U.S. budget deficit.
Moreover, we still have to wait more than two months for Trump’s inauguration. The global economy and U.S. markets could experience a lot of turmoil over that period.
All of this has raised doubts as to whether or not the Fed will raise rates in December. Probably not. Regardless, during his acceptance speech, Trump said his economic policies would create 25 million jobs and double the country’s growth, leading to the strongest economy anywhere in the world. (Source: “Transcript: Donald Trump’s Victory Speech,” The New York Times, November 9, 2016.)
Doubling the country’s growth from two percent to four percent is a bit of a stretch when you consider growing countries like India and China are stalling.
And maybe raising rates isn’t even the biggest issue facing Janet Yellen right now. After all, Trump has been pretty vocal about wanting to replace Yellen. He accused the Fed of keeping interest rates near record lows to make Obama look good.
If you’re Yellen, do you wait to hear “You’re Fired!” from Trump or do you save face and resign early?
Despite Uncertainty, There Are Clear Winners on Wall Street
Trump’s economic plan might be a little thin right now but that doesn’t mean there haven’t been some clear winners on Wall Street.
Corrections Corp Of America (NYSE:CXW) was up more than 60% in intra-day trading while The GEO Group Inc (NYSE:GEO) advanced 35%. Investors are looking to get ahead of the curve and anticipate Trump will use existing corrections and detention facilities to detain some of the 11-million-plus illegal immigrants in the U.S.
A Republican presidency translates into increased defense spending. Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), and Raytheon Company (NYSE:RTN) all enjoyed solid double-digit gain on Wednesday, November 9.
Under a Trump presidency, investors can look for natural resources like coal, oil, and natural gas to do well. Remember Keystone? It could be back on the table. During his campaign Trump invited TransCanada Corporation (TSE:TRP), the firm that proposed the pipeline project linking Alberta’s oil sands to the Texas Gulf Coast, to reapply to build the project, after it was rejected by Obama in 2015.
With Trump in the White House and Republicans in control of both houses of Congress, Obamacare is up in the air. And with it, price controls. Pharma stocks were also early winners with Pfizer Inc. (NYSE:PFE) and even Bristol-Myers Squibb Co (NYSE:BMY) enjoying a bump.
On the other end of the spectrum, the uncertainty around Trump means precious metals like gold and silver will continue to find a spot in diversified portfolios. Gold and silver may have pared the gains they made after it was first announced that Trump had just pulled off the greatest upset in U.S. political history, but it’s also still holding strong.
No matter how you voted, if there was ever a time to hedge against economic uncertainty, this is it. And precious metal miners like Hecla Mining Company (NYSE:HL), Pan American Silver Corp. (NASDAQ:PAAS), and a myriad of other companies continue to do well.
