What a Week


  • We reflect on last week’s surprising stock market reaction to Donald Trump’s unexpected election victory.
  • The S&P 500 gained 3.8% last week, its best since October of 2014. The Dow Industrials and small cap Russell 2000 delivered their best weeks since December of 2011.
  • The outlooks for financials, healthcare, and industrials appear to have brightened, while the impacts on energy and small caps are more mixed.
  • The near term may be more volatile for emerging markets (EM), although we continue to view the asset class as a potential intermediate-to-long-term opportunity.

This week we reflect on Donald Trump’s surprising victory and the stock market reaction. With Election Day behind us and the benefit of several days to digest the news, we reflect back on what was quite a week for the stock market. Here we offer some perspective on the trading week and share our views on some of the most politically sensitive asset classes and sectors.


There were two big surprises this week for investors: one was of course an election outcome few predicted, and the other was the market’s reaction to it. We are not surprised that stocks recovered; but rather how swiftly. Not even the market’s surprisingly fast recovery from the unexpected Brexit “leave” vote in the U.K. back in June of 2016 prepared us for this. After Dow futures were down over 800 points after the result became clear late on election night, the blue chips reversed course the next day (November 9) to end more than 250 points higher, before adding another 218 points on Thursday and 40 points on Friday. The Dow was down all five days the prior week before rising each day last week; a wild ride to say the least.

By week’s end, the S&P 500 had produced a five-day gain of 3.8%, the best week for the index since October 2014. The 5.4% and 10.2% gains for the blue chip Dow Industrials and small cap Russell 2000, respectively, were the best since December of 2011.

We believe several factors are behind the rebound:

· The certainty of an outcome. A prolonged legal battle to determine our next president would have damaged investor confidence. Some cash on the sidelines was likely waiting for a definitive outcome.

· Optimism regarding a peaceful transition. President-elect Trump seemed to strike the right tone for markets in his acceptance speech and appears willing to work with Republicans and Democrats to get things done, an encouraging development for markets.

· Favorable election year pattern. Stocks have tended to do well late in election years due in part to the policy clarity provided by a winner. Since 1952, the S&P 500 is up by a median of 3% between Election Day and Inauguration Day (the average, at 1%, is skewed by sharp drops in 2000 and 2008), with gains 69% of the time [Figure 1]. Though policy uncertainty remains high, the likely path is becoming clearer each day.

· Anticipation of market friendly policies. The odds that many of President-elect Trump’s market-friendly policies are implemented following the Republican sweep are high and include tax reform, infrastructure spending, and rolling back regulations in areas such as financial services and healthcare.