What a 24 hours it’s been. This time yesterday, the markets were in free-fall. Stocks across Asia were deep in the red, while S&P 500 futures in the US were “limit down” 5%.
Other risk assets were equally beaten up and bloodied. Then, within just a few hours, the world was suddenly good again, sparking one of the greatest market turnarounds ever seen.
To put the moves in perspective, the range for S&P 500 futures was the second-largest on record.
A Trump presidency, after sparking one of the most savage market selloffs ever seen, was suddenly deemed to be the best thing for markets in years.
While his pro-growth policies focused around fiscal spending were cited by many analysts as the reason behind the rally, it was the measured, almost gracious, victory speech delivered by Donald Trump at 3am in New York that really sparked the recovery.
After months of bruising, controversial statements, it came as a surprise, and led many to question whether the rhetoric heard before the election would be significantly tempered now that he’s president-elect.
It clearly helped boost sentiment and, as a consequence, financial markets. However, not everyone is convinced the conciliatory tone will become the norm once Trump takes office on January 20 next year.
Nick Parsons, head of research for the UK and Europe and global co-head FX strategy at the National Australia Bank, is one analyst who remains cautious on the near-euphoric price action seen in financial markets overnight.
In just two paragraphs he sums up perfectly why caution is warranted. About the only thing we truly know is that no one knows what will happen:
It’s important to remember that Trump is “President Elect”. He does not take office until 20 January 2017; still 71 days away. It’s important to remember too that pledges and promises made on the campaign trail are non-binding. A candidate can say anything he or she wants without being bound by it in office. A politician’s promise is not the same as a real promise. Hillary Clinton will not be in jail by the end of January.
The only “hard evidence” of what Trump has said since his election was his victory speech delivered at 3am NY time. Yes, this marked the start of a turnaround in S+P 500 futures – the second largest intra-day swing of all time – and though it was conciliatory in tone, both domestically and internationally, it was hardly a State of the Union address. It is no more binding than his pre-election threats and promises.
No one knows what policies will actually be implemented, nor whether what was seen from Trump will be a sign of things to come. Unknown unknowns, to quote an earlier administration.
At the moment a lot of the optimism in markets is built on a series of “ifs” and “buts”.
Here’s the 5-minute tick chart for US S&P 500 futures this week. From top to bottom, they gained over 138 points, or 6.82%.