Stock markets in the United States did not have uniform performances, the industrial Dow Jones Industrial Average soared to its highest level ever while the more technology driven Nasdaq Index plunged following the result of last week’s presidential election.
Promises given by the President–elect Donald Trump to reduces taxes and provide a basis for spending has provided investors with more reasons to believe that the world’s largest economy might grow faster than expected. And even though there are expectations for higher corporate profits, U.S. stock indices had divergent performances.
Since Donald Trump’s victory, investors have shifted their holdings towards financials and industrials from sectors such as real estate and consumables.
The Dow Jones Industrial Average surged to a record high of 18,831 points and ended the week’s trading with an increase by 4.3%, with Goldman Sachs and JPMorgan contributing to a large part of the gains. On the other hand, the Nasdaq Composite Index on Thursday slipped by 1.7% to 4,737.25 points led by a decrease of the Amazon stock price, while on a weekly basis there were mild gains by 0.5%.
The U.S. dollar increased against some emerging markets currencies. During Wednesday’s trading session, the USD/MXN increased by 8.7% and by the end of the weekly trading session the gains reached by 13.9% to 20.85505.
Increases in the majority of the stock markets following the result of Tuesday’s U.S. Presidential elections have defied earlier forecasts that if Donald Trump was elected, there would be major sell-offs due to the geopolitical uncertainty that his possibly radical administration would trigger.
Investors now are expecting an increase of government spending which will assist in improved corporate balance sheets. However, it will also increase debt on a national level together with inflation and that in turn is leading to a sell-off in bonds. The yield on the 10-year bond increased to 2.13% by the end of the week, its highest level since the beginning of the year.
While the presidential election result initially shocked the markets, there now appears to be increased optimism given that there has been a pledge of a smooth transition by President-elect Donald Trump and outgoing President Barack Obama. Moreover, there have been supportive comments towards Donald Trump by some Republican party members who were initially opposed to having him as a candidate during the campaign period.
Fiscal stimulus, which refers to increasing government consumption and lowering taxes, might be an easily achieved task for the upcoming Trump administration. But other policies and reforms, including the healthcare sector and immigration, as well as radical changes to the U.S. trade policy pledged by Trump during his campaign might be more complicated to put into effect and at the same time difficult for the markets to price in.