What Comes Next for the Markets After Donald Trump’s Win

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FINANCE ELECTION 2016
What Comes Next for the Mar­kets After Don­ald Trump’s Win

by Lucinda Shen @ShenLucinda NOVEMBER 9, 2016, 12:05 PM EST
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Eco­nom­ists see incred­ible uncer­tainty.
The unex­pec­ted vic­tory of busi­ness­man Don­ald Trump Tues­day night in the race to become America’s 45th pres­id­ent sent shock­waves through glob­al mar­kets.

Though S&P 500 and Nas­daq futures fell 5% overnight, U.S. mar­kets man­aged to recoup those losses and even post gains in early Wed­nes­day trad­ing. Dow Jones futures plummeted by over 800 points Tues­day night, but the Dow Jones Indus­tri­al Aver­age was up by about 1% by noon East­ern Time Wed­nes­day. Japan’s Nikkei 225 was down 5% after a slide on Wed­nes­day morn­ing, but the Shang­hai Com­pos­ite, which fell as much as 1.3% in early trad­ing, largely reversed those losses.

Per­haps more telling were move­ments in bond mar­kets: Treas­ury yields were much higher as of mid­day, as investors anti­cip­ated that Trump’s plans for tax cuts and infra­struc­ture spend­ing would widen U.S. defi­cits and drive up interest rates.
As for what comes next, no one can be even remotely sure. The pres­id­en­tial seat will be the first polit­ic­al pos­i­tion Trump has ever held, and already the pres­id­ent-elect has prom­ised many policies chal­len­ging the status quo. He has threatened to impose much higher tar­iffs on imports from Mex­ico and China, along­side oth­er rhet­or­ic that threatens glob­al­iz­a­tion.

Here’s what ana­lysts in the fin­an­cial world have to say:

Citi‘s group of ana­lysts, led by Tina Ford­ham, com­men­ted on the sur­prise Repub­lic­an cap­ture of the White House and its reten­tion of major­it­ies in the Sen­ate and House. The team noted that Trump’s ten­ure in the White House will likely be marked by uncer­tainty, and could put the expec­ted Decem­ber Fed­er­al Reserve interest rate hike on hold. The Citi team wro­te:
Trump has no exper­i­ence in gov­ern­ment, and his ten­ure as Pres­id­ent will likely be marked with uncon­ven­tion­al, and poten­tially errat­ic, poli­cy­mak­ing that departs sub­stan­tially from the polit­ic­al mod­us operandi of the past, wheth­er Repub­lic­an or Demo­crat. This expect­a­tion of change was a major driver of his pop­ular appeal, but it is likely to unsettle markets….A Repub­lic­an sweep of the White House and both cham­bers of Con­gress raises the risk that Trump will find sup­port to pur­sue his more ambi­tious cam­paign agenda items such as invok­ing a trade war that may weak­en US net exports and reduce busi­ness invest­ment. This is our near-term reces­sion risk scen­ario, that likely would either keep the Fed on hold indef­in­itely, or even prompt interest rate cuts to off­set the reces­sion-related dam­age to the US and glob­al eco­nom­ies.”
Ever­core ISI‘s Terry Haines noted that while the Sen­ate, House, and White House are now united under the Repub­lic­an party, the divide between Trump and his party still exists. That sug­gests that the uncer­tainty Trump might bring to the pres­id­ency will be tamped down by Con­gress — mean­ing less volat­il­ity for glob­al mar­kets.

Put bluntly, Trump can­not uni­lat­er­ally change laws or reg­u­la­tions with the stroke of a pen. This Con­gress and its lead­ers — Speak­er Ryan and Major­ity Lead­er McCon­nell — are intent on restor­ing the legis­lat­ive branch as a coequal branch of gov­ern­ment: one plank of Ryan’s Bet­ter Way” legis­lat­ive pro­pos­als is about ways to achieve that goal regard­less of who becomes pres­id­ent. The new Repub­lic­an Con­gress, in pro­por­tion very like the cur­rent one, is not going to kow­tow to a Pres­id­ent Trump, but rather will seek to drive the poli­cy agenda. It is for this fun­da­ment­al reas­on that we con­tin­ue to favor the prag­mat­ic” Trump over the pop­u­list” Trump scen­ario: Con­gress will not per­mit pres­id­en­tial freel­an­cing both for con­sti­tu­tion­al and purely polit­ic­al reas­ons.”
Cowen‘s Chris Krueger though noted that the smash­ing win” will res­ult in a cab­in­et that reinforce’s Trump’s cam­paign beha­vi­or in a ana­lys­is brack­eted by lyr­ics from Lynyrd Skynyrd’s Tuesday’s Gone.” Now investors must wait to see who will be in Trump’s cab­in­et.
Trump sworn-in as Pres­id­ent on Janu­ary 20 with a GOP House and Sen­ate. Budget recon­cili­ation rules mean pas­sage of tax/ health care/deficit bills with sim­ple major­ity. Trump uni­lat­er­al power on tar­iffs,” Krueger wro­te. Over the next 100 days, he added that investors should watch out for these scen­ari­os: Demo­crat­ic Party meltdown/ cir­cu­lar fir­ing squad; Tea Party/Trump coup again­st Paul Ryan (Sean Han­nity stated last night he should not be Speak­er); Pres­id­ent Obama reac­tion, Lame Duck – lit­er­ally zero chance for Judge Gar­land, TPP, or any­thing else of mean­ing; Trump Cab­in­et announce­ments (Trade posts will be key to watch); Trump dia­logue with House and Sen­ate GOP lead­ers (this is also crit­ic­al – and is the anchor on the Bull Trump Case).”