Yesterday many stock markets have closed higher (eg, Dow Jones + 1.39%, Nasdaq + 1.11%, S&P 500 + 1.10%, Paris + 1.49%, Frankfurt + 1.56%, London + 1%).
What are the expectations of financial markets from the elections of Donald Trump?
I would like to know your opinions.
Thanks in advance for your comments.
One should think in terms of whether the result is the expected result. If it is expected, the the markets have time to capitalize whatever outcomes are imagined. Otherwise, the result will initially be increased volatility. When market participants think things over they will come to realize that presidents actually have much less power than is suggested during their campaigns. Then things will settle down.
@Peter F. Colwell,
Basically, do you think that results can be interpreted either as a surprise or as increased volatility?
Fabrizio,
Both. Surprising electoral results will produce greater volatility. The new equilibrium should take some time to emerge. Expect Pres. Trump to have trouble from both Democrats and Republicans in Congress. Let's say that he intends to have a new tax regime, then the Congress will have something to say about that. You can apply this principle to many things the new President intends to do. Changing a government is like steering a large ship. You have to start early and you can only do it by small increments. If you immediately put the wheel over hard, the ship slows down and doesn't turn (think Obamacare).
Peter
I am not a specialist, but I agree with Peter, once again, what the media discovered is the possibility of a large scale public works program (Highways, tunels, bridges, ...) this would have a wordwilde effect. This is not proper to Trump but Trump could benefit from a republican congres.
I am not sure of the balance of all the various effects of trump election. What I am quite sure is that the hypothesis of "rational expections" is not any more sustainable siince 2007-2008.
cheers,
Dom.
I believe could be interesting to measure the abnormal returns in sectors (and firms) in which Donald Trump has direct interest and how much these sectors weigh on US economy.
Fabrizio,
Yes, the presidential elections affect the stock market because of the two different political views on how to manage the economy. At this point, market has hardly any information to absorb regarding the fiscal policy of the new administration as a result of surprise results. The volatility in the market will depend on the investor's confidence in the new administration's policy, and the economic growth as a result of new economic policies.
Regards,
Mohammed
Fabrizio,
You can't really do something with just the Trump win. Instead, why not think in terms of an event study covering all presidential elections. One of your explanatory variables could be how surprising the result was. You would be explaining features of the stock market (volatility, excess return, whatever). That is something that could be done.
Peter
Dear Professor Fabrizio Rossi,
I think the effect of presidential election is a complex problem which is over most market players' decision limitation. Donald Trump winning is a big surprise to the present market and fluctuation acts. Both upward and downward moving are possible.
Fay
Dear Fabrizio,
I would agree with Peter about the do-ability of event studies to be conducted as regards the previous election results announcements, before and after the announcement dates. Meanwhile, regarding Trump, I think the strong effect on the stock exchange markets come from Actions (Events), not Words. What we got so far from him are Words only.
With this being said, let's wait and see. I think this guy will never cease to amaze us.
Due to the probability of the candidate being elected who will be adverse to these stock markets, there will be a small decline before the election, which will then rise to its previous level or slightly exceed it after the voting is in.
Many thanks for your valuable comments. I agree with you Peter, an empirical analysis involving all Presidential elections has an additional value.
It is worth-mentioning that most of the US Presidents' executive orders are usually NOT executable.
Executive orders are commands to the bureaucrats within the executive branch of government. These orders can be countermanded by the President who created them or by any later President. In addition, they may be ruled unconstitutional by the courts. They are not laws.
I think stock market would follow upward trend as the proposed lower tax rate would encourage business to invest more and and at the same time it would also boost up the aggregate demand. The overall, business sentiments are likely to be positive.
So far this is what happens: an upward trend in the stock markets in general. However, once again I repeat "let's wait and see what Donald Trump is gonna do, not say". I am usually optimistic, but not with Trump as a President.
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