For months, word on the Street was that a Trump win would crater the stock market. Like Brexit, investors concerned over the erratic decision-making and absolute political inexperience of the Donald would de-risk and move out of equities. E.g., here's Bridgewater Associates calling a 10 percent stock market drop just yesterday.
Yet the day after Trump’s big shocking win, the Dow briefly made record highs before ending up 1.4 percent from where it closed Tuesday – a day that saw markets rising steadily on increasing certainty of a Clinton victory.
Now, it seems analysts have gone from seeing Trump as a historic risk to seeing him as a man capable of maintaining a single thought for more than a few seconds – let alone a coherent policy position for the length of a campaign.
Specifically, Wednesday’s rally is riding on the notion that Trump will fulfill his promise to make American infrastructure great again with a $1 trillion stimulus investment. Mix in tax cuts, widespread deregulation, and you have the makings of a big ol’ inflationary stimulus. Deutsche Bank, courtesy of FT, explains:
The question is not whether Trump can get a large fiscal stimulus through, but whether a Republican Congress can ‘right size’ the package so as to not undermine fiscal sustainability too much. What would ‘right size’ look like? Something akin to say a 1% of GDP per annum, and, a 2 or 3% of GDP cumulative stimulus, would be a macro game changer.
That sounds pretty confident! Markets priced in a Clinton win, convulsed when that certainty evaporated, then plowed right back into equities on the logic of pricing in a Trump presidency. Apparently with a remarkable degree of accuracy.
Not everyone was so credulous. Jefferies chief economist Ward McCarthy told CNBC, “Frankly, you don't know what he's going to do. He's an unpredictable character, and politicians say a lot of things in elections that never come to fruition.” Morgan Stanley analysts cautioned against following Carl Icahn into the dip, calling it “too difficult to predict what will happen in the first 100 days in a new administration, or frankly, what will happen before then.”
But the market has had the final word, and that word is Buy.
It would be tiresome to list all of Trump’s policy reversals – going from “no amnesty” to “quite a bit of softening” and back again on immigration, for instance – suffice to say that a market rally built on the words of Donald Trump is worth calling into question.
Then again, who knows. Trump could indeed craft a dazzling infrastructure plan, line up some pliant Democrats, and double the rate of economic growth. But there's literally no way he can do everything he's said he will, given the impossibilities that would entail.
As Silicon Valley’s biggest Trumpist Peter Thiel told us, “A lot of the voters who vote for Trump take Trump seriously but not literally.” Wall Street seems to be opting for the latter.
UPDATE: Case in point, Donald Trump's campaign just deleted all its past news releases. On the plus side, anything is possible!