Global equities were rising before the start of the election, hoping for a victory for the Democratic candidate Hillary Clinton. These hopes were built on public polls, which have been presenting wrong signals since the beginning of this year. This occurred in many events, including the Brexit referendum and the US election. What’s next?
The biggest lesson that everyone should learn from this year is that NOTHING is guaranteed. You should never see any political or economic event as definite or permanent. Everything can change with time.
Why Did The Markets Crash?
President Trump is very different. He is a businessman who never held a position in the political sphere. During his campaign, he promised his supporters to take strong measures against the decisions of the Obama administration, especially the healthcare program, which is one of the reasons why the US GDP is still growing. His statements and actions showed that he is willing to stand against the world and renegotiate most trade agreements, especially those made with China.
Such promises aren’t in favor of Wall Street, the US economy, and the global economy as a whole. Investors rushed into safe haven investments like Gold and Bonds, while global stocks and Crude Oil tumbled across the board.
Why Did The Markets Rebound?
So it was easy to understand why the global markets crashed, but it might be a more difficult to understand the markets’ recovery; it was a shocking rebound. Why would the global market drop on fears of the new president and then rebound and trade near record high on the same day? There are two reasons for that notable rebound:
- Donald Trump
- Central Banks
Donald Trump: Yes, this is true. Donald Trump himself is the reason behind the notable rebound. Those who watched his victory statement can tell that he is supported by the efforts of his clever advisors. His statement was not racist and addressed all Americans. He was also quite positive and optimistic for the future which is a clear change from his previous statements in which he threatened wall street, politicians, bankers, immigrants and almost everyone else. This change gave the market a push to believe that the previous statements will not be enforced because he won’t be in full control of the presidency and because there are decisions that he will not be able to take for they will have a tremendous global effect.
Central Banks: There are many signs that global central banks have intervened in the markets right after the notable drop. Liquidity spiked right after the US session opening bell. Moreover, the ECB also said that it might need to intervene in the markets. Does it mean that they haven’t? No. Did they? I believe they did to stop the continuous crash.
Do We Still Need To Worry?
Well, the market wasn’t even worried about Trump before the election. Now after his statement, it seems that the markets are optimistic. Yet, you do need to be worried. This is primarily because the well-written victory statement does not mean that the pre-elections Trump has changed. In order for him to maintain his popularity, he needs to stick to his promises.
Otherwise, the people might lose faith in him. Therefore, the victory speech may have just been a way to keep everyone calm and optimistic. It does not by any means imply that he will not take major decisions in the coming months. So the market might get it wrong again – as always. Therefore, you need to keep your eyes open in the coming days, weeks and months. The US we had before November 9th is not the one we have today. It will never be the same.