Elections, in any country, make the markets fluctuate. There is a universal fear of change in markets when it comes to politics. The process of even peaceful transfer of power often causes the markets to spike or drop. While this is most severe when the power change is less than peaceful, stable democracies experience this as well. 2016 was an expectation defying year for American politics. It had been predicted that a victory for Donald J Trump would cause the Dow to drop 1000 points. It would be a complete catastrophe. But, heir apparent Hillary Clinton seemed to have an assured victory. The victory of Donald J Trump was a shock to many groups, however, the effect on the market has been fascinating. Instead of a complete crash. The U.S dollar is strong, and growing stronger with all the benefits and negatives that implies. Instead of crashing, the Dow is up. Not only is the Dow up, it's up 1,200 points four weeks since Trump’s election.
Far from the fear that a President Trump would be the end of Pax Americana, it seems that Wall St. is expecting that the Trump administration will be good for business. Proving that not only politicians can say one thing, and expect another. It seemed to most, that Hillary Clinton was the darling child of Wall Street. This was sufficiently evident that rival Bernie Sanders did not fail to use in his attacks against her candidacy. As speculators are keenly aware the market seldom lies when it comes to expectations.
Instead of a complete disaster, the dow is now only 500 points away from a historic milestone, the 20,000 marker. Big milestones have been a lot more difficult in the past. The Dow first hit 100 in 1906 and took about twenty years to trade higher. It didn’t break above it until 1942. By 1982 the Dow would trade above the 1000 mark, and it would stay that way until the burst of the dot com bubble. By 2010 it recrossed and balanced out above the 1000 mark. Is getting this close to a new record a good thing? That’s the question raised by the Wall Street Journal. They cite a study by Yu Yuan a Shanghai professor of finance whose studies show that such markers worry investors. Instead of a confidence, it causes more activity in their portfolios. This can lead to some instability.
While expectations of good continued business, and expectations of increased profit have raised the DOW, it is still speculative. Most of the rapid increase of the DOW is based on what is expected to occur not what is occurring. The Dow was not so generous to President Obama. During much of President Obama’s time in office stocks have rallied from the 1,000 point fall they had suffered during the period after his election, and gained 10,000 points since. Despite threats to lower drug prices of pharmaceutical companies, accusations of crony capitalism, and numerous other issues, the markets are betting not only on a Trump presidency, but most importantly, on American viability. This should be encouraging for many reasons. Some may interpret this as a wholesale endorsement of Trump and his values. Rather this should be viewed as a wholesale confidence in traditional American values of free enterprise and the power of the individual. Trump's comments according to CNN spooked Biotech stocks but was not enough to stop the rise of the DOW. Even Trump’s threat to stop Boeing’s development of the next Air Force One only caused a brief and relatively minor drop in Boeing’s stock with the Dow closing at a high. Most of the rallying is based on the belief that tax cuts and infrastructure spending will create economic growth. This,is in addition to the fact that in many ways, the U.S economy is not nearly as bad off as it has been made to seem. Though much more is to be done. The danger is that risk of inflation has not been accounted for, and the long-term implications of a strong dollar loom. If the dollar remains too strong, there will be negative implications for U.S exports and blue chip stocks that rely on them. Any suggestion of how the next four years will go, based off the market, is premature. But so far, it seems far less apocalyptic than many feared.
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