Financial experts were confident of one thing before the Trump win: if he won, it would trigger a panic reaction. Stock prices will drop along with the values of other assets that are regarded as risky. Bonds and other so-called safe assets were also expected to rise in value.
Trumped up markets
Nothing like this has happened. In fact, the opposite is true. The S&P 500 Index went up by almost five percent during the second week of November. Interest rates have risen in the Bond market. There was also a dip in volatility measures. An analysis of the data reveals that this is primarily due to the campaign promises made by Trump. He mentioned lower taxes to be imposed on businesses and fewer regulations all around. Infrastructure spending will be ramped up as well. This may not assist the economy as a whole, but would surely enhance the major companies’ bottom line. These are the reasons that the stock markets have exhibited such optimism.
Not all promises made by Trump are good for the economy. A number of large US companies may actually suffer a challenging environment and depressed profits. A good example of such self destructive policy is the abandonment of the North American Free Trade Agreement or NAFTA. If this were to go ahead, then there can be considerable damage to the automobile industry of the United States. There will be similar bad effects if the future Trump administration engages on trade battles with China. The US exports about $165 billion worth of goods to China every year. Many US companies also import raw materials or semi-finished products from the country. Such steps will disrupt their business models.
If Trump delivers on his pledge to remove the millions of immigrants who are considered as “undocumented” in the United States, the industries which considerably depend on immigrants, like the service industries and agriculture, may suffer. The upswing on the market is due to the fact investors believe that Trump will carry through the plans which are good for profitable growth. They expect that the businessman turned politician will be more careful when tackling negative policies. Trump had mentioned, in the course of his victory speech during election night, that he has every intention to rebuild highways, hospitals, schools, tunnels and airports. Millions of people will be employed as part of such a publically funded construction boom and, notably, there were no mention of throwing out any trade agreements.