What's behind the Trump bump in markets?
By Mark Humphery-Jenner, UNSW Australia | The Conversation – 20 hours ago
The market bounced back after Trump’s victory in the US election, despite predictions that his policies could hurt business. This relates as much to the surprise return of a Republican Congress as it does to the election of Trump. It also largely turns on Trump being unable, or unwilling, to act on much of his rhetoric.
One research paper predicted a market fall of up to 10% if Trump won. The governor of the Reserve Bank of Australia indicated that Trump could trigger a shock greater than Brexit.
However, the US Dow Jones Industrial Average advanced 1.4% on Wednesday, and a further 1.17% on Thursday. Asia-Pacific markets also plummeted initially, as markets realized Trump would win, but recovered later – the Australian ASX 200 index fell 1.9% on Wednesday (Australian time) as Trump’s victory became apparent, but rose 3.3% on Thursday.
This is surprising given the US market generally declines around 1% following a presidential election. For example the market fell on the elections of Obama (5.27% in 2008; 2.37% in 2012), Bush (1.58% in 2000) and Reagan (0.73% in 1984).
The Trump rally is even more unusual because the market had already priced in the likelihood of a Clinton win, and a Clinton victory seemed likely.
The rally implies businesses believe that not only is Trump not harmful, he might be better than Clinton. A benign, conciliatory, and well-received victory speech alone could not achieve that: a passable speech does not erase myriad speeches with heated rhetoric.
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