US markets reacted surprisingly the day after Donald Trump clinched the 2016 US presidential election.
Stocks rallied 1.11% to a new all-time record high of 2,163.26 after futures had a turbulent night where they dropped more than 5% at one point:
Overnight gold rose to as much as $1,331, about a 5% increase, but then leveled off the day after to now just about 1.1% above its pre-election level:
The biggest surprise to me was Treasury rates. 30 year Treasury rates spiked from 2.62% to 2.88%, an increase of 26 basis points in one day, or an effective drop in the underlying bond value of around 7%:
The US dollar dropped ~2% at first on foreign exchange markets when the news broke that Trump was winning, but then bounced back the day after, and actually finished up ~1% after all.
Over all, the market’s reaction on the net has been far more subdued than that of Brexit, which led to soaring gold, crashing stocks, and a flight to safety in the UK with 30 year government bonds rallying over 10%.
Trump’s election has received a relatively positive reaction on the stock market, a mildly positive reaction in gold, and a massive selloff in US Treasury bonds. This might indicate that the market is not particularly worried about uncertainty leading to lower consumer spending and thus lower corporate profits. Most notably, stocks rallied, in spite of the risk free rate in Treasury bonds surging. Maybe the market anticipates a positive effect of Trump’s business and economy friendly tax plans on corporate profits.
The selloff in Treasurys might signal higher inflation expectations on the part of market investors as a result of Trump’s planned tax cuts and the resulting expected deficit spending. If those don’t materialize then these bonds are looking pretty attractive when you compare the availability of risk free interest paying investments, such as 30 year bonds at 0.5% in Japan, or 1.93% in the UK.
This post was written by Nima Mahdjour.
The views expressed here belong to the author and do not necessarily reflect our views and opinions.
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