Market Volatility World-Wide in Reaction to US Presidential Elections
On Tuesday, November 9th, financial markets began cratering through the night as votes were counted and Donald Trump moved closer toward a massive upset victory in the US presidential election, one he eventually secured early Wednesday morning. US and European stock futures and benchmarks in Asia began sliding and the Mexican peso crashed. Meanwhile, safe havens including gold and US Treasuries rallied.
Currency and stock market valuations are largely based on how much people trust their governments and how stable they feel. The way investors see it, Trump and his economic positions are less predictable than Hillary Clinton’s, and do not always follow Republican party orthodoxy. Therefore he is perceived as more of a political risk. That, along with the fact that major forecasters thought a Clinton win was more likely ahead of the results, created a surprise for investors. The assumption that Democratic nominee Hillary Clinton would notch a comfortable victory had boosted markets earlier in the week. But on Tuesday night investors began to grapple with the possibility that Trump’s controversial proposals to negate long-standing trade agreements, deport millions of immigrants and radically re-engineer the tax code could become reality.
The Mexican peso, which had fallen as the Republican nominee rose in the polls during his campaign, nosedived to an eight-year low, according to Bloomberg. The panic stretched all the way to Asia, where Japan’s Nikkei index plunged more than 900 points, or 5.4 percent, early Wednesday morning. In Europe, the Stoxx Europe 600 index was off 0.7 percent after dropping as much as 2.4 percent. In an early flight to safety, gold charged higher.
Perhaps it’s useful to also consider what happened in the markets after other political shocks. We can look at Brexit, whose populist-movement background draws some parallels to the rise of Trump. On the Friday after Britain voted to leave the EU, the S&P 500 and the Dow both wiped out all of their gains for 2016, while Nasdaq fell by over 4% — the biggest one-day drop in the last 5 years. This sort of emotional response to a political shock is actually quite typical of investor (and, more broadly, human) behavior. Unexpected and potentially destabilizing political events make traders and investors nervous, which then leads to volatility in financial markets. But history has shown time and time again that these events generally do not have a sustained impact on markets, and our economy survives on.
http://www.businessinsider.com/markets-reaction-to-election-results-2016-11
https://www.washingtonpost.com/news/wonk/wp/2016/11/08/markets-plunge-worldwide-as-trump-shows-surprising-strength/