Turbulence in financial markets calmed after a knee-jerk selloff in stocks and rally in haven assets as investors reassessed the effects of Donald Trump’s surprise victory in the U.S. presidential election.
Health-care stocks surged as investors unwound bets that a win by Hillary Clinton would bring intense regulatory scrutiny, and banks rallied on speculation a Trump presidency could usher in reforms that ease regulatory burdens. Thirty-year Treasuries sank amid wagers on higher spending, while shorter-dated notes rallied as bets on a Federal Reserve hike waned. Mexico’s peso plunged on prospects the economic integration with the U.S. will unravel. Gold is having one of the heaviest trading days ever, and the yen climbed on haven demand. Copper soared on the outlook for more infrastructure projects.
“It’s an amazingly impressive recovery off the lows for risk assets,” said Craig Collins, managing director of rates trading at Bank of Montreal in London. “It’s very surprising given the feel the session had to start with, that it was a massive risk-off flight to quality bid. Now the early losses are getting erased and it looks like it could go unchanged on the day by the time the U.S. gets in.”
A Trump victory had been portrayed by analysts as having the potential to unhinge markets banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. Going into the vote, most polls showed Democratic candidate Hillary Clinton ahead. Trump has pledged to clamp down on immigration to the U.S. and renegotiate free-trade agreements with countries including Mexico. In his victory speech, he pledged to focus on rebuilding U.S. infrastructure.
“It’s time for America to bind the wounds of division,” Trump said as he addressed cheering supporters in Manhattan. “I pledge to every citizen of our land that I will be president for all Americans.”
Stocks
U.S. stocks fluctuated as speculation Trump will pursue business-friendly policies offset some of the broader uncertainty surrounding his ascent. The S&P 500 Index was little changed at 2,138.28 at 10:01 a.m. in New York.
“Markets generally don’t like one party to have complete control,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “The Republicans have been a market-friendly party. I think part of the reason the market rallied is because it looks like they’re going to take all three. But Trump is this big question mark.” Health-care shares surged as investors unwound bets that a win by Clinton would bring intense regulatory scrutiny. The SPDR S&P Biotech exchange-traded fund surged 8.2 percent for the biggest gain in eight years, while Pfizer Inc. and Merck & Co. paced gains in the Dow Jones Industrial Average. An ETF tracking biotech shares in the Nasdaq Composite Index rallied almost 10 percent.
Equity investors sent equity futures tumbling overnight as it became clear Trump would pull off a historic upset. S&P 500 futures tumbled by the maximum 5 percent loss permitted on the Chicago Mercantile Exchange before trading curbs are triggered, then pared their decline to less than 1 percent by the open.
Regardless of how equity prices react today, next-day moves in the S&P 500 are useless in telling what comes after, as gains or losses over the first 24 hours predict the market’s direction 12 months later less than half the time. In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 percent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.