Like a bigger Brexit, investors failed to predict the populist triumph in last night’s vote.
Stock markets and index futures plummeted last night and early this morning as investors marked-to-market Donald Trump’s impending presidency.
S&P 500 futures and Nasdaq 100 futures each fell more than 5 percent overnight, but have recovered most of their losses as trading set to reopen. Trading of S&P futures was roughly 17 times the typical volume as votes and states rolled in for the former reality TV star and New York real estate developer, according to Citi.
The overriding sentiment from asset managers is uncertainty.
“Number of Unknown Unknowns Remains High; Trump Totally Flexible on Very, Very Many Issues,” read the headlines of Legal & General Investment Management’s assessment of America’s choice for President.
“It is a cliché that markets don’t like uncertainty, but we would now expect a higher risk premium for US assets,” wrote Lars Kreckel, global equity strategist for the London-based investment firm. All new heads of state encounter a learning curve, he continued. “However, given Trump’s lack of political experience and track record of ill-advised comments and unexpected policy announcements, the scope for initial errors seems greater and the speed of how he adapts to the role therefore becomes more important.”
Market volatility is expected to continue in coming weeks, according to Kreckel, echoing commentary from Standard Life Investments, Hermes Investment Management, and Henderson Global Investors.
“It’s hard to argue that risks to global growth are anything but to the downside,” Henderson’s Head of Global Equities Matthew Beesley commented in a note to clients.
“By sector, obvious beneficiaries will be those exposed to infrastructure expenditure — so selected industrial and technology companies,” Beesely wrote. “President-elect Donald Trump has vowed to do away with Obamacare; this is clearly negative for large sections of the health care sector, though for the pharmaceutical sector, the Clinton-based pricing overhang will be removed and we should expect stocks to rally accordingly. Trump’s disdain for the environment has been much discussed; we can expect to see energy stocks to rally.”
While most U.S. Presidents start with a domestic focus, he concluded, “Trump has been elected – and now has a mandate — to shrink America’s influence and impact upon the world.”