While today brings an unexpected new political reality, markets around the world are already adjusting to the new order.
Global markets opened sharply lower Wednesday in a knee-jerk reaction to Trump’s surprise win, but pared losses as the day went on. As of this writing, U.K. markets are about half a percent lower while the German stock index is off just over 1%.
S&P 500 futures fell 5% before triggering circuit breakers. Once trading resumed, futures recovered some of the losses, and were predicting a 2% decline in the S&P about two hours before the open. Oil and the dollar also initially sold off sharply but pared some of the losses in the early morning.
In the bond markets, the yield curve has steepened as investors dump longer-dated treasuries (good news for banks and insurers). But the odds of a December rate hike have declined (bad news for those same stocks). The bond market selloff was already well underway before Trump’s win, as investors braced for the double-whammy of higher inflation and a rate hike next month. The election results have lowered the odds of both, but longer-dated treasury bonds remain out of favor.