Global markets whipsawed by Trump victory

Caught off guard, financial markets reacted sharply to Donald Trump’s election victory Tuesday.

But contrary to many predictions of tanking global markets in the event of a Trump win, markets worldwide and in the U.S. quickly rebounded and have actually shown surprising strength. Just like the election results that caught prognosticators unaware, the financial reaction has caught many experts flat-footed.

“Oh my God, this [election] is going much differently than was expected,” Wells Fargo Chief Investment Officer Erik Davidson said from his Carmel office Thursday about the week’s market action.

Davidson attributed the market’s turnaround to Trump, in his victory speech, appearing presidential and gracious. This, together with Hillary Clinton’s concession speech and President Barack Obama’s remarks Wednesday, helped reassure markets that a peaceful transfer of power was on track.

Also, word that Trump would push for infrastructure spending also cheered the markets as they eyed the potentially profitable prospect. The American Society of Civil Engineers has estimated the cost of fixing America’s infrastructure to be $3.6 trillion by 2020 potentially making for big-ticket spending on infrastructure.

Charles Schwab Center for Financial Research, however, sounded a note of caution to investors.

“We expect [volatility] will last as long as uncertainty remains,” Schwab warned in its report this week. “How President Trump will govern is a huge wild card.”

It pointed to many factors which could lead to a period of higher volatility in the markets. Chief factors cited were that Trump still needs to put together a cabinet, hire a staff to figure out policy priorities and develop a relationship with Congress and, in particular, with some members of his own party.

Furthermore, they expressed much will also depend on whether Trumps makes good on his campaign promises. Those promises include building a wall on the Mexican border, repealing and replacing the Affordable Care Act and cutting individual tax rates.

In the near-term Schwab noted, Trump and Congress will be facing another budget deadline Dec. 9 for funding government operations. In the past, this has been a contentious issues for a faction of Republican legislators.

As if to underline this point, the often overlooked bond market saw dramatic action this week with Interest rates on the 10 year Treasury bond increasing by an extraordinary quarter to half a point.

“We have likely seen lowest interest rates for a generation,” Davidson said.

Davidson further cautioned there is a high probability of a recession just based on the length of current economic recovery. Davidson said this is the second longest economic recovery in U.S. history.

Venoo Kakar, assistant professor of economics at San Francisco State University, echoed Davidson’s view.

“The Federal Reserve is on course to raise interest rates driven by [economic] fundamentals,” Kakar said. “We cannot have interest rates too low for too long because it fuels asset bubbles.”

Ming Vong

Published by
Ming Vong

Recent Posts

James Taylor tells of Inheaven’s origins

James Taylor -- singer-guitarist for great new English outfit Inheaven, which hits The City next week -- believes he was…

1 hour ago

MCL sprain spoils Curry’s return, leaves Warriors in purgatory

Oakland — After the Golden State Warriors most meaningless win of the Steve Kerr era, Quinn Cook’s birthday cake sat…

2 hours ago

Former deputies ordered to stand trial in beating of suspect

A San Francisco judge Friday ordered two former Alameda County deputies to stand trial for allegedly assaulting and battering a…

8 hours ago

SF State serves rent increases, eviction notices to faculty and student residents

When Sarah Johnson decided last year to leave behind a career at San Francisco State University that spanned three decades,…

9 hours ago

Giants usher in historic 60th season

AT&T PARK — When Larry Baer was growing up in the Outer Richmond at the dawn of the Giants’ era…

9 hours ago

Designs for new Golden Gate Bridge toll structure unveiled

Plans to replace the Golden Gate Bridge toll plaza with a sleeker, taller toll structure called a “gantry” took shape…

9 hours ago