Donald Trump’s surprise election sent stocks tumbling across the globe Wednesday, and his campaign immediately sought to calm U.S. markets before they opened.
After a night of jitters, the Dow Jones industrial average moved into positive territory when stocks opened at 9:30 a.m., defying predictions – much like the Trump campaign.
The surprise U.S. stock rise came after Japan’s Nikkei closed down by more than 5 percent as traders pondered relations after Trump’s campaign rhetoric about that nation paying more for its defense. In Europe, stocks tanked soon after Trump secure the electoral count to claim the presidency.
Trump’s senior economic adviser Peter Navarro, a University of California-Irvine economist, went on the cable business news channel CNBC shortly before the open to calm markets and ordinary Americans whose retirements savings are in play.
“Everything points toward the direction of growth,” said Navarro, talking up tax reform and infrastructure spending and predicting the Dow Jones industrial average will be above 25,000 points by the end of the first term. “If you are out there today, just look at the chess board!”
Given that the Dow has bumped around the 18,000 range lately, it would be about a 38 percent cumulative rise in the Dow over four years, a modest target if a Trump economy grows as sharp as promised. During the campaign, Trump called stocks overvalued and warned of large drops.
Financial markets still worry, however, that Trump will try to rip up existing trade agreements and spark trade wars. Navarro said imports have been shaving a percentage point off of growth annually. If Trump can flip the trade balance it would be positive for growth and stock prices, he told viewers.
Ahead of Wednesday’s open, analysts predicted steep drops for sectors considered at risk for change, especially the healthcare sector which faces the potential repeal of the Affordable Care Act. Shares for companies that make auto parts with operations in Mexico that supply Detroit assembly lines are also expected to face challenges in the weeks ahead.
Energy stocks were expected to be spared the hit, as Trump is perceived to be more open to drilling and energy exploration.
“We view Trump’s victory as generally positive for fossil energy extraction, midstream infrastructure and downstream processing; generally neutral for renewable fuels, power and storage; negative for electric vehicles; and disruptive for climate policy and international oil company investment in Iran,” Kevin Book, managing director of the consultancy Clearview Energy Partners, wrote in an election analysis.
Global government bond yields tumbled overnight in developed countries as investors fled stocks to the safety of low-paying bonds. Trump’s election had the opposite effect on developing nations, where risk-averse investors demanded higher returns for buying government bonds.
Wealth was being erased in instants across time zones Wednesday as markets took in the possibility that Trump, who has promised to challenge China with an America-first approach, came come to power. Adding to concerns were Trump’s earlier comments that he might default on U.S. debt.
“The markets’ main concerns include Trump’s protectionist policies, focusing on potential trade wars with China – America’s largest trading partner – and with Mexico, it’s third largest,” Nigel Green, CEO of deVere Group, a British advisory firm for rich investors, wrote in an investment note early Wednesday.
Stock futures, which trade during off hours on the expectation of what will happen when trading begins in New York, signaled a sharp selloff in New York, similar to what happened when British voters defied expectations and voted to exit membership in the European Union.
Shortly after midnight in New York, stock futures that track the S&P 500 were off by 5 percent. Futures for the open of the Dow Jones industrial average effectively hit the floor they’re allowed before they can trade no lower before the open, sort of a rule-caused halt to trading. It means anyone who had $100 invested in a mutual fund that tracks the S&P 500 stood to lose $5 right at the open. Multiply that over millions of Americans with retirement plans, and billions of dollars of wealth stand to be erased amid market turmoil.
Investment analysts warn ordinary investors against exiting the market during a stampede-like selloff because it raises the risk of locking in losses and missing the rebound that often follows days, weeks or months later.
Like Ronald Reagan decades earlier, Trump is an unknown quantity as a national political leader. But unlike then, global financial markets are deeply interconnected.
As voting drew to a close Tuesday, high voter turnout in Pennsylvania and Florida sparked a rally in stock futures trading as investors cheered what they thought was the status quo amid an improving economy.
A Clinton victory would be seen as bolstering the political status quo in the US, allowing investors to focus on the improving outlook for the US economy and corporate earnings. Mark Haefele, global chief investment officer for
Swiss bank UBS, in a note to investors late Tuesday.
Wednesday is sure to be a rough day as well for Mexicans, whose currency, the peso, had become a proxy for the U.S. elections.
Trump’s promise to build a border wall and renegotiate the North American Free Trade Agreement has battered the peso, ironically making Mexican-made goods coming into the United States even cheaper for consumers. After recovering on Monday when polls suggested a Clinton win, the peso lost more than 11 percent of its value, to 20.37 to the dollar, in after-hours trading early Wednesday. It recovered slighty before the open of U.S. markets but was still down nearly 10 percent in value against the dollar.