Trump and the Stock Market

It's the day after the election, and the tricky task at hand on Wall Street is trying to predict what happens next after almost everyone failed to predict what just happened. But don't expect that to stop everyone from trying.

It's hard to determine how volatile markets will be in the near term, and the longer term is even more difficult. As a Donald Trump victory came into focus overnight, S&P 500 futures went a jaw-dropping “limit down” with a 5 percent plunge that briefly halted trading. They went on to recover most of that plunge before the open, and the first two hours of trading looked like another day in the office, with benchmark indexes flat to down slightly.

Trading is now much more about gut instincts than fundamental analysis. The status quo is not just gone—it's been set on fire and its ashes have been scattered to the wind faster than the attendees at all those blue-state election night parties. What will replace the status quo is a riddle wrapped in an enigma wrapped in an ill-fitting suit and a suspicious combover.Complicating matters are the mass buying and selling of index products, which could cause a tightening in correlations that may obscure trends for the near future.

Still, in the spirit of the president-elect, who has a fascination with “winners” and “losers,” some obvious beneficiaries of a Trump White House were rising strongly even before the market opened. Drugmakers like Mylan NV and Abbvie Inc. surged on relief that Hillary Clinton won't be interfering with pharmaceutical prices; miners like Newmont Mining Corp. and Freeport-McMoran Inc. rallied as investors rushed to the safe haven of gold; military contractors Raytheon Co. and Lockheed Martin are up for obvious reasons. The same goes for gunmakers Sturm Ruger and Smith & Wesson, which might not need to change its name now.

Many bank and financial stocks that struggled overnight have begun to poke their heads above water on prospects that regulations such as Dodd-Frank and the Labor Department's fiduciary rule could soon just be bad memories. With apologies to Warren Buffett, perhaps we won't know who's been swimming naked until the swamp is drained? With record numbers of VIX futures outstanding before the election, we can't help but wonder if this event has the potential to make the mass exodus from hedge funds by pensions and insurance companies look especially ill-timed.

Yet amid all the uncertainty, we humbly offer one possible reason for equity investors to see the glass as half full.

If there's one thing we learned about Trump it's that he loves quantitative displays of his popularity, from ratings to poll numbers. The question now, after the election results gave him that final dose of ego-boosting affirmation that he craved, is where will he turn next for quantitative proof of his hugeness? Well, there's always the stock market. Could he now pivot to the S&P 500 as his go-to vanity mirror for sizing up his popularity?

Surely he noticed how strongly stock-index futures protested overnight as his presidency came into focus. But futures were off their lows as he gave his victory speech, which was heavy on the stock-market-friendly/bond-market-unfriendly aspects of his platform: “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” Trump promised.

Conspicuously missing were the aspects of his platform that would alarm the stock market: ripping up international trade deals, alienating NATO allies, building walls, provoking entire religions, etc.

Is it possible to Make America Great Again if you trigger a bear market in the process, threatening the retirement well-being of a graying populace? That's something Trump is going to have to contemplate as he looks in the mirror.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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