Trump's Election and the Markets

crisper57

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I got this from Charles Schwab. Thought it was worth sharing.

Trump Wins: What Happens Now?

By SCHWAB CENTER FOR FINANCIAL RESEARCH
NOVEMBER 09, 2016
Key Points
  • Donald Trump’s surprise presidential election victory led to extreme market volatility in overnight trading.
  • Markets are likely to remain unsettled in the near to medium term.
  • In times of uncertainty, remember that panic is not a good investment strategy, and that it’s important to stick to your long-term investment plan.
The election analysis provided by the Charles Schwab Corporation does not constitute and should not be interpreted as an endorsement of any candidate or political party.

Our view, expressed over the past month, was that a surprise win by Donald Trump would likely be one of the most unsettling outcomes for the markets. Indeed, that has come to fruition. As the realization of a Trump win began to set in, Dow Jones Industrial Average futures dropped more than 800 points; meanwhile, the S&P 500® Index fell more than 100 points, triggering circuit breakers. Dow futures later recovered some of those losses.

The carnage reflects the significant uncertainty associated with a Trump presidency, and the shock to traders and investors who were relying on the polls. It’s likely of little solace at present, but at times like these it is more important than ever to remind ourselves that panic is not a good investment strategy, and that your portfolio should be connected to a financial plan.

Stocks weren’t the only market seeing a dramatic move—the Mexican peso, a barometer of the vote, fell by more than 10% by the time the election was called, the largest drop in eight years. Demand for perceived safe-haven assets also supported gold’s surge and a drop in the 10-year Treasury yield to a two-week low. Expectations for a Federal Reserve rate hike in December also sank, as did the U.S. dollar and emerging market stocks. And the CBOE Volatility Index, which was below 13 as recently as two weeks ago, has surged to over 25.

The drama harkens back to the so-called Brexit vote in June, and the market’s reaction to it. The hit to the U.S. futures market that June evening triggered the Chicago Mercantile Exchange’s limit-down price curbs for overnight trading. Those rules kick in when S&P Globex futures drop by at least 5% from the prior session close. The rule was triggered again over election night, when the futures fell to below 2,029, which means the contract cannot trade at a lower price for the remainder of the overnight session.

In terms of tomorrow’s regular session trading, circuit breakers will kick in if the S&P 500 drops by 7% (Level 1), 13% (Level 2) and 20% (Level 3) from Tuesday’s close. That works out to 1990, 1862, and 1712 by our math. Trading will halt for 15 minutes for Level 1 and Level 2, unless the drop occurs after 3:25pm ET. A Level 3 halt would occur immediately and last for the remainder of the trading day.

But if Brexit is anything resembling a proxy, remember that the recovery was as swift as the sell-off … not that that’s a prediction for what’s to come. Volatility is likely to remain extremely elevated in the near to medium term as the unknowns associated with a Trump presidency become resolved. To the extent that expectations around Fed policy could be a needle-mover, the futures market is showing plunging expectations for a December rate hike; meanwhile, global central banks would likely lean back toward additional monetary policy easing. This could help to settle markets.

How President Trump will govern is a huge wild card. If he carries through on his anti-trade, pro-tariffs rhetoric, we believe it would be highly detrimental to economic growth. Tax cuts, an infrastructure spending plan, and reduced business regulation might offer offsetting boosts, but they would bring the problem with the deficit and debt back into the spotlight and likely sink the U.S. dollar.

But let’s not get ahead of ourselves. Remember, our system of government was established and operates with numerous checks and balances in order to mitigate extreme policy risks. And Trump still has to put together a cabinet, which is possibly a taller order than would have been the case under a Hillary Clinton presidency. Then there’s the issue of Trump’s relationship with Congress. The Democrats can still clog up legislation in the Senate. One also wonders how Trump will deal with Republicans, given the rampant animosity expressed in both directions throughout the campaign.

The bottom line: We suggest investors ignore the noise while the dust settles and stick to their long-term asset allocations. Volatility is likely to be extreme. Reacting emotionally is a time-tested poor strategy for managing one’s money.

FWIW, the markets did not plummet this morning. Last time, I checked, the DOW was even up.
 

BigRedRage

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I got this from Charles Schwab. Thought it was worth sharing.



FWIW, the markets did not plummet this morning. Last time, I checked, the DOW was even up.
yeah surprisingly, things were rather level already this morning. I spoke with my stock guy (a friend, i dont pay anyone or anything) and he said business as usual.
 

Bodha

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I got this from Charles Schwab. Thought it was worth sharing.



FWIW, the markets did not plummet this morning. Last time, I checked, the DOW was even up.

Plummet from the prior plummet point, or up from where it bottomed out yesterday?


Point being, Im happy they havent sunk lower, but to say "nothing happened" isnt true. The market tanked last night. Its just *good news*, it hasnt sank any further.
 

elindholm

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Point being, Im happy they havent sunk lower, but to say "nothing happened" isnt true. The market tanked last night. Its just *good news*, it hasnt sank any further.

The futures tanked. The current-price market stayed the same overnight and went up today.
 

Brian in Mesa

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Plummet from the prior plummet point, or up from where it bottomed out yesterday?


Point being, Im happy they havent sunk lower, but to say "nothing happened" isnt true. The market tanked last night. Its just *good news*, it hasnt sank any further.

It ended up at an all-time high. Yeah, definitely glad it didn't go any lower than that. :rolleyes:
 

thirty-two

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This past month has been ridiculous.
 

Russ Smith

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We're nearly at Dow 20K, doesn't seem sustainable. What was interesting is for awhile the nasdaq was falling but now it seems to have gone back up nearing a 52 week high.
 

Brian in Mesa

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Dow Jones industrial average reaches new high, tops 20,000 level for first time

https://www.washingtonpost.com/news...evel-for-first-time-2/?utm_term=.7910f96d3afa

The closely watched Dow Jones industrial average reached historic levels Wednesday, landing above 20,000 points for the first time in a week when President Trump began to put his agenda in place.

Shortly after the election, investors dubbed a surge in stock prices the “Trump rally,” pushing U.S. stocks to new heights in anticipation that the new president would work with the Republican-led Congress to lower taxes and pass more business-friendly policies. But time and again as the Dow appeared ready to breach the 20,000 threshold, there was a retreat.

This week, as Trump vowed to rewrite trade agreements and revive pipelines, the markets began to rev again. It closed on Wednesday at 20,068, up 0.8 percent.

For the Dow, encompassing 30 large publicly traded companies, topping the 20,000 level holds more symbolic than practical value. But Wall Street has been anticipating the rise could give investors the psychological boost to keep stock prices climbing even further.

The broader Standard & Poor’s 500-stock index and the tech-heavy Nasdaq composite index have also been trading at record levels. The recent run-up in stock prices has added about $2 trillion in market value since the election to companies that make up another broad index, the Wilshire 5000.

The Dow has surged nearly 10 percent since the election. The Standard & Poor’s 500-stock index, a broader take on the market, and the tech-heavy Nasdaq hit record levels earlier this week and rose nearly 1 percent in trading Wednesday as well.

Stocks staged a remarkable rebound in 2016, starting the year with massive sell-offs as investors worried about China’s rocky economy and falling oil prices and then panicked when Britain voted to leave the European Union.

Each sell-off was followed by a recovery that pushed stock prices back into positive territory. After sagging as much as 10 percent in 2016, the Dow jumped 13 percent for the year, more than half of the rise coming since the election. The S&P was up about 10 percent last year, while the Nasdaq grew about 9 percent.

The markets’ rise “becomes self-fulfilling momentum,” said Art Hogan, chief market strategist for the investment firm Wunderlich. “Whether you’re an individual or an institution you start chasing momentum.”

But, some market analysts say, stock prices may have already risen too far too fast. Investors are ignoring potential stumbling blocks that lie ahead for the U.S. economy, including that the Federal Reserve is beginning to raise interest rates — it bumped up a key lending rate last week, a move that traditionally has added costs for businesses. And it is unclear whether Trump will be able to implement all of his campaign promises, including lowering corporate taxes.
 

thirty-two

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Biggest one day drop since Trump's election. Is there a correction in our near future? Or is this just a blip?
 

AsUpRoDiGy

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Biggest one day drop since Trump's election. Is there a correction in our near future? Or is this just a blip?
Market correction. Investors had a hard on for Trump's de-regulation plans, but after his budget proposal, and the fed interest hike...people are slowly starting to abandon ship. I don't expect another 1.2% loss tomorrow, but certainly going to see a steady decline at the massively over-inflated DJI. Expect a pretty substantial change in the DJI over the next 6 months... with only a moderate change in the S&P.
 

Yuma

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Just saw an assessment on TV, and Wall Street people say we are not going to get tax reforms and reduction in red tape as originally proposed by Trump Administration. I kept asking myself why? They never went into why Wall Street knows these things are not happening. watching Closing Bell to see if they explain it. Mostly just segment news on markets.
 

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Putting aside Trump's claims that he alone is the cause for the markets hitting record highs - as if Obama had nothing to do with getting the rocket to the launchpad - something I'm watching is the steady increase of the 10 Year Treasury Yield... surpassed 2.6 today and hit the highest level it's been since June of 2014. The "correction" is coming... but as always, timing it is the real magic work.
 

BillsCarnage

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Dunno if the correction is started, but the last two days have been a wee bit volatile. Healthcare is getting hammered from the Amazon/Chase announcement.
 

AZCB34

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Dunno if the correction is started, but the last two days have been a wee bit volatile. Healthcare is getting hammered from the Amazon/Chase announcement.

There may also be uncertainty over what Trump will say during the State of the Union
 

Russ Smith

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Dunno if the correction is started, but the last two days have been a wee bit volatile. Healthcare is getting hammered from the Amazon/Chase announcement.


Yeah this week has been pretty bad for the markets.

Down nearly 200 on Monday, over 300 on Tuesday, slightly up wed and thur and then down nearly 450 as I type this on Friday. That's just the DOW, Nas and S&P not been good either.

The funny thing is what "they" claim is driving the markets down really isn't that bad. Apple put up record earnings, yes their iphone sales were off, but because of the much higher prices, they actually earned more money from iphones last quarter than expected, and had a higher average sales price. Their guidance was not only not particularly bad, it was already baked in. But everyone reported it as negative so the stock is .down a bit today and that is allegedly what is pulling the overall market down, big stocks like Apple and Google.

Amazon is my saving grace today virtually every stock I own is down today but Amazon is up nicely.

Barring a late rally, the markets will close about 900 points off the close last Friday, worst week in quite awhile. But of course January was so good it was amazing, so not a huge surprise.
 

AsUpRoDiGy

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Yeah this week has been pretty bad for the markets.

Down nearly 200 on Monday, over 300 on Tuesday, slightly up wed and thur and then down nearly 450 as I type this on Friday. That's just the DOW, Nas and S&P not been good either.

The funny thing is what "they" claim is driving the markets down really isn't that bad. Apple put up record earnings, yes their iphone sales were off, but because of the much higher prices, they actually earned more money from iphones last quarter than expected, and had a higher average sales price. Their guidance was not only not particularly bad, it was already baked in. But everyone reported it as negative so the stock is .down a bit today and that is allegedly what is pulling the overall market down, big stocks like Apple and Google.

Amazon is my saving grace today virtually every stock I own is down today but Amazon is up nicely.

Barring a late rally, the markets will close about 900 points off the close last Friday, worst week in quite awhile. But of course January was so good it was amazing, so not a huge surprise.
Dow ended up closing -660, with both Nasdaq and S&P down ~2%. Worst week in over 2 years it looks like. Feds raising interest rates, and fears of inflation are what's causing the sell-off. Strong earnings and job report didn't do much to curb the hysteria. Markets will continue to fall until Feds stop raising interest rates it seems. A correction was due at some point, just surprised it took this long.
 

Russ Smith

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Dow ended up closing -660, with both Nasdaq and S&P down ~2%. Worst week in over 2 years it looks like. Feds raising interest rates, and fears of inflation are what's causing the sell-off. Strong earnings and job report didn't do much to curb the hysteria. Markets will continue to fall until Feds stop raising interest rates it seems. A correction was due at some point, just surprised it took this long.

Yep on CNBC they were saying it's largely related to the bond market and yields going up which is related I guess to interest rates. If bonds start to go up, people sell out of stocks into bonds because it's safer, and that drives stocks down.

Agreed a correction has been a long time coming. Would love to see stocks just keep going up forever but obviously that's not reality.
 

AsUpRoDiGy

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Yep on CNBC they were saying it's largely related to the bond market and yields going up which is related I guess to interest rates. If bonds start to go up, people sell out of stocks into bonds because it's safer, and that drives stocks down.

Agreed a correction has been a long time coming. Would love to see stocks just keep going up forever but obviously that's not reality.
It's a double edged sword when the Fed raises interest rates; all types of loans now become higher, which almost always hurts earnings...also bonds and treasury notes suddenly start to look more attractive around the 3% yield. I expect a decent sell-off next week also before the market starts to stabilize. People are too emotional in their investments and freak out at any sign of trouble.
 

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We met with two different sets of bankers for The company I work for both expected interest rates to keep rising

They also expect wage pressures to increase especially if the GOP immigration plan goes through As baby boomers are retiring in record numbers every year the labor pool was going to shrink the only reason we haven't had those pressures today is because of immigration
Dramatically restrict immigration combine with a shrinking domestic labor pool due to retirement and you're going to end up with labor shortages across the board
 

AsUpRoDiGy

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Stop losses and Algos turned this into a bloodbath, and no one is buying the dips yet, so expect more selling and more panic. Market 'should' stabilize after the government shutdown is resolved. As I type this...Dow just closed with biggest single day point loss ever. Crazy!
 

Dback Jon

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Stop losses and Algos turned this into a bloodbath, and no one is buying the dips yet, so expect more selling and more panic. Market 'should' stabilize after the government shutdown is resolved. As I type this...Dow just closed with biggest single day point loss ever. Crazy!

#Winning!!
 

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Dow is now 400 points lower than it was when the GOOP passed the #TaxScam
 

Russ Smith

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Not a good day for stocks

Yeah ASU prodigy called it although I was surprised at just how bad it was today. At one point the Dow was down 1600, 10 minutes later it was 800 and you thought OK the fools have all sold, and then bam down again finished down over 1100.

The market needs corrections but when it's this fast you get concerned about momentum. Cramer is calling it a "flash crash" where the selling volume is just so high the markets can't handle it and panic sets in.

oddly I was watching Trump speaking earlier and bragging up a storm but he said nothing about a market that was down 675 points as he was talking.
 
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