By now, you should know the ‘shocking’ news.
That’s right; Donald Trump won the US presidential election.
We know, that’s hardly a scoop. It’s been over a week since the election.
But what you may not know is the impact it’s had on markets worldwide.
We’re not just talking about stock markets, either. You’ve probably seen how they’ve performed — the US markets are near a record high.
No, we’re looking at other markets — arguably, more important markets. And the impact there is just stunning.
Few mainstream commentators predicted a Trump win. Hardly any even thought he had a chance.
Even as the first results came in, the New York Times still had the election at a 75% chance of a Hillary Clinton win.
But that didn’t happen. Trump won, and, initially, world markets went into a nosedive. The Dow Jones Industrial Average futures contracts were down more than 700 points at one point.
Then, almost without warning, the market flipped. The ‘Armageddon’ market scenario turned to a Ronald Reagan-esque bright vision for the future.
What happened? Why? And what as it meant for a bunch of key markets? We’ll explain.
Making it great again
Folks had bottled up the idea that a Trump presidency would be a disaster.
However, that’s because they focussed on two things: foreign policy and immigration (or emigration in the case of illegal Mexicans living in the US).
That can be important to markets. But it’s not nearly as important as some of Trump’s other expected policies. Namely, the promise to ‘Make America Great Again’.
Now, we’re not for a moment suggesting that Trump’s vision will succeed. Nor are we saying that it has any merit. But what we think isn’t important.
More important is what the market thinks. And after reassessing what Trump says he’ll do for the economy, the markets turned. Like it or not, the markets believe that, far from being a disaster, Donald Trump could be the best thing the markets have seen since Ronald Reagan.
Take this news story from Bloomberg as an example:
‘Analysts spent early November warning a Trump victory in the U.S. presidential election would make the Federal Reserve less likely to raise interest rates. What happened instead is that it made a December increase a near certainty.
‘Traders assign about a 94 percent probability, the highest level this year, to a Fed boost at its final meeting for the year on Dec. 13-14. Trump’s spending plans, and Republican control of Congress, are causing the market to revise higher its outlook for the pace of Fed rate increases.’
The old saying is that investors should ‘buy the rumour, and sell the fact’. That is, buy on the prospect of something happening, but then quickly sell when it happens. The reasoning is that the actual outcome, even if it’s as predicted, rarely meets everyone’s full expectations.
The Trump win was different. Folks ‘sold the rumour, and then bought the fact’. It’s why markets rebounded so quickly after the initial losses.
The prospect of higher interest rates has boosted the chance of a US Federal Reserve rate rise, as the market sees good days ahead. That’s not the only boost. It’s happening elsewhere, too.
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Resources back from the ‘dead’
Take this news from Reuters:
‘The U.S. dollar index dipped after hitting a near 14-year high on Wednesday while oil prices swung in a volatile session as traders were caught between a build in U.S. stockpiles and the chance of an output cut.’
It wasn’t so long ago that the US dollar was completely on the nose. Some thought the dollar’s days were numbered. Yet now, it’s near a 14-year high.
That’s not all. Check out this chart of the copper price:
[Click to enlarge]
Most of that price spike has happened since the Trump win.
Price spikes have happened to other industrial commodities, such as iron ore.
It’s plain to see why. Trump wants to spend, and support the spending of billions of dollars on infrastructure projects (including ‘that’ wall).
With that, the prices of key building commodities such as copper and iron ore have taken off.
This is a boon for the resource industry. Just when most investors thought the good years had gone — that China’s spending could no longer support the sector — what happens? Trump happens, that’s what.
It’s why our resources analyst Jason Stevenson continues to recommend investors stake a part of their portfolio in resources stocks. But not any old resources stocks. Particular resources stocks.
Which in particular? We can’t tell you here. But you can find out in some detail, if you go here.
For Markets and Money
Editor’s Note: This article was originally published in Money Morning.