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Trump Presidency Confounds Market

In an election that shocked the world, Donald J. Trump was officially chosen to be the next President of the United States on Tuesday. But what does this political outsider’s rise to power mean for national and global markets?

Early polls predicted a Hillary Clinton victory with up to 75% certainty, so Trump’s unexpected triumph invoked highly emotional responses, surprised investors, and had many fearing for their economic futures.

As President Barack Obama said in Buzzfeed video released on Tuesday, “no matter what happens, the sun will rise in the morning,” and rise it did. After markets plunged late Tuesday night, Wednesday morning brought on a quick recovery with market growth continuing into Thursday, despite prevalent concerns of a full-scale economic collapse.

Northwestern Economics Professor Giorgio Primiceri commented on potential factors responsible for the relative stability seen in the last few days.

“I think one reason for the rise is because uncertainty suddenly became lower in the sense that we now know who the president is. The other thing I have noticed looking at the futures market is that futures reacted strongly and negatively after it became clear [Trump] would be elected, but after his acceptance speech was more gracious than what people might have expected, the trend reverted and futures began to go up,” he said. “The other argument is the fact that both chambers and the President are Republican probably means that the government is not going to stall.”

As votes came in on Tuesday night, Dow futures dropped 800 points, and S&P 500 and Nasdaq 100 futures fell more than 5 percent after Trump gained leads in Michigan, Wisconsin, and Florida, but all three indices cut losses and rebounded early Wednesday to levels similar to that of last Friday. On Thursday, the Dow surged 218 points to a record closing high, the S&P 500 climbed 0.2 percent, and the Nasdaq fell 0.81 percent.

These positive reactions continue to defy odds, since historically, on the day after past presidential elections, markets have only rallied on 6 out of the last 21 elections, according to CNN Money.

Globally, UK’s FTSE 100 index, France’s Cac index, Germany’s Dax, Japan’s Nikkei index and the Shanghai Composite have recovered most or all of their early losses.

Since Tuesday night, yields on U.S. Treasury bonds continue to rise quickly, indicating expected high inflation. Trump’s policy platforms of lowering taxes, increasing infrastructure spending, restricting immigration, and raising tariffs are expected to drive up interest rates.

“An important thing to note is that the bond market has reacted negatively. Whether this depends on the fact that people expect tax cuts or increases in spending, which may increase the deficit, it would make government bonds marginally less secure as an investment,” said Professor Primiceri. “This is not necessarily a bad thing in a year where interest rates are very low. The U.S. economy has been trying for a long time to get out of the zero lower bound, so this could be a slight positive for the economy.”

Predictions of market behavior after the election permeated the media cycles earlier this week. The general trend of analysts expected that a Trump presidency would have more drastic affects on the market than a Clinton victory.

“I think the election of Donald Trump will have a more profound impact on the stock market. There’s a lot of uncertainty surrounding his economic and foreign policies, and I can’t imagine the market will respond well to that,” said former director of ISBE Analytics, Senior Kathir Sundarraj. “It’s tough to predict whether or not a Clinton victory [would] lead to long term market effects — I would say that there likely wouldn’t be a change unless Clinton [was] able to work magic with congress and get through some solid legislation.”

With the FBI confirming last weekend that they would not press charges regarding the investigation of Hillary Clinton’s email server, the stock market rallied and rose more than 2% on Monday, indicating that investors favored a Clinton presidency.

Regarding currency, the Mexican peso dropped drastically to an eight-year low and both the Yen and the Swiss franc surged the morning after the election.

Trump’s first 100-day agenda, titled “Donald Trump’s Contract With The American Voter” states that he intends on labeling China as a currency manipulator as soon as he enters office. He plans on changing China’s trade policies by exposing methods of keeping the Yuan artificially weak against the dollar, which takes away from U.S. manufacturing jobs by making Chinese exports more competitive.

It is impossible to tell how the highly volatile markets will handle the upcoming months preceding Trump’s official inauguration in January, but at least for now, the economy remains relatively stable.

(Image courtesy of: https://fortunedotcom.files.wordpress.com/2016/03/55728040.jpg)

(Image courtesy of: https://fortunedotcom.files.wordpress.com/2016/03/55728040.jpg)

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