What If Trump wins which, we are told, is more likely than the polls would suggest? The result could be a bit like the aftermath of the Brexit vote: a sharp selloff, and then a rebound as investors rediscover that the president is part of a much larger system of overlapping and competing majorities, and that he alone is not all that powerful. Speaking of federalism, the stock market prefers the president and Congress to be from different parties, which is, the polls say, what we will get.
The above is what I wrote clients in my most recent appraisal letter. With these conclusions in mind, I dragged myself out of bed yesterday morning and got to the office thinking I would snap up some bargains at the open, which I expected to be down 1,000 points, maybe more. With computer at the ready, I sat and waited, and waited some more. You know the rest: The stock market did not collapse. Instead it went up at the open and continued to go up all day long.
The stocks that went up the most were ones without dividends or with very low dividends, and the stocks that went down in price tended to be the bond substitutes, companies like Verizon, which has a secure and attractive dividend. Also up were healthcare and financial stocks, both sectors which have struggled under past regulations from the Obama administration and feared more regulations from a future Clinton administration. Bonds also went down in price (by 10%), especially the bellwether 10-year Treasury bond, which everyone in the world follows. Altogether, what happened today was exactly the opposite of what everyone expected would happen if Donald Trump managed to win, which no one expected. In sum the experts were wrong double over; they were wrong about the election and they were wrong about the aftermath of a Trump victory.
Why the bond sell-off and stock rise? Now the experts are attributing it to impending infrastructure spending and deregulation from the Trump administration, which would encourage inflation and interest rate increases.
Today we’re back at work, another day. But I am left with one thought. How much of the mystery that we call the economy are we given to know? In a career that has not been short, I have learned the same lesson over and over, no one knows the future, and it is a fool’s errand to try.