Once again, the markets have been wrong-footed by the result of a globally significant electoral result and once again, they immediately over-reacted to the surprise result of a Trump victory. Just like Brexit, the longer-term implications of the 2016 US General Election have yet to be played out.
The markets have learned a lesson from Brexit
From a financial market perspective, it seems that lessons have been learned from the recent aftermath of the EU referendum in June. With hindsight, it was wrong to have initially overreacted to the Brexit vote. And given the relatively muted response from markets thus far, it would appear that investors have learnt that there is no need to panic.
European stock markets swung from sharp losses back into positive territory. The FTSE 100 overturned big early losses to close 1 per cent higher at 6,912 points by the end of Wednesday. The index is now up 15.5 per cent from its post-Brexit vote lows.
Elsewhere, leading European equity indices also rallied strongly, with the French CAC 40 up 1.5 per cent and the German DAX 1.6 per cent, buoyed by Wall Street, defying expectations. The Dow Jones ticked up 256.95 points on the day after the election, whilst the S&P 500, which tends to set the global tempo and had been forecast to fall by as much as 5 per cent, instead turned higher, rising 1 per cent to reach a one-month high by midday.
The rush to safe havens unwound throughout yesterday. Gold prices, which had jumped 5 per cent to a six-week high of $1,337 per ounce, eased back slightly. The US dollar strengthened against a range of currencies and yields on Treasury bonds rose.
Conciliation and reassurance has replaced election rhetoric
Experts said that Mr Trump’s first speech as president-elect, in which he called for unity, had been conciliatory and reassuring. Nevertheless, the one thing we can be certain of is more uncertainty. Speculative predictions and potential market volatility are still prevalent.
For instance, growth forecasts for the Eurozone and Britain have been downgraded by the European Commission. They warned of “political uncertainty” ahead amid a “backlash against globalisation” across Europe and the world. It has been suggested that the US election result could now undermine the love affair that the market has had with emerging market equities and debt throughout 2016.
Our fundamental assumptions haven’t changed
Turning to our in-house managed investment portfolios. Our initial judgement is that Donald Trump’s victory doesn’t change the fundamental assumptions that we have incorporated into our investment strategy and our selective global diversification. The aftermath of the Brexit result demonstrated the clear danger of liquidating investments in panic and missing the restoration of market stability.
The aftermath of Brexit demonstrated the danger of selling investments immediately after an vote result #trumppresident
We remain confident in the positioning of our investment portfolios and their ability to deliver attractive returns over the long-term with constant monitoring and strategic changes where needed.
You can read more about our views on the global investment opportunities and learn more about our balanced portfolio in the latest edition of our Market Outlook Report.
What do you think? I’d be really keen to hear your views if you think that Trump’s election will be real boost to the world economy. Or if you think it will put the brakes on growth. Join the conversation below.