What does Trump's election win mean for stocks, monetary policy and currencies?

Despite the Brexit experience earlier this year, Donald Trump's election win still came as a surprise to many. US indices fell sharply in initial trading, with US futures losing over 750 points while the votes were being counted, before US indices clawed themselves all the way back to even.

Despite the Brexit experience earlier this year, Donald Trump's election win still came as a surprise to many. US indices fell sharply in initial trading, with US futures losing over 750 points while the votes were being counted, before US indices clawed themselves all the way back to even.

It appears that many traders did have Brexit in the back of their minds, with backup plans prepared for multiple scenarios. As a result, the surprise and recovery have played out over a much shorter timeframe.

It’s possible that some traders may be taking the more conciliatory tone in his acceptance speech as a positive, and that some of the heat of the campaign may fade.  For example, Federal Funds are still pricing in an 80% increase of an interest rate hike in December, even though Donald Trump's election raises questions of who may be leading the central bank in the longer term. During the campaign, Mr Trump had accused the Fed of keeping rates artificially low, so hawks at the Fed may find more political wind at their backs going forward. This appears to be helping USD hold up very well.

Currency market concerns which took down the pound after Brexit have focused more on the Mexican peso, which has taken a 10% loss in post-election trading. The Canadian dollar has taken a 1% hit on concerns over what Mr Trump’s win cold mean for NAFTA. Although his sights are set mainly on Mexico, there is a concern that Canada could get caught in the crossfire of a trade dispute within North America.

The president-elect's momentum carried down through the tickets, boosting Republicans to big wins across the country and giving the Grand Old Party a resounding mandate for change. In addition to the White House, the Republicans held control of both Houses of Congress (Senate and Representatives), giving them the ability to break gridlock and push through legislation. They also picked up three state governorships. 

A number of sectors and individual stocks are active on both sides of the border as traders sort out who could be the big winners and losers from this dramatic shift in power. For example, Biotech stocks, which had been under fire from Hillary Clinton over soaring drug costs, popped on the news that she lost. On the other hand, hospital stocks like HCA have been hammered over the potential that the incoming administration and Congress may be able to carry out their promise to repeal Obamacare and replace it with something else.

Even if the tone is softer, traders appear to be expecting that President-elect Trump will keep many of his core promises. For example, Caterpillar has rallied on anticipation that building a wall along the Mexican border could increase demand for heavy equipment.

Energy related sectors have also been active on what looks like a potential tidal shift in political support. The Republicans support in Congress for the energy sector, both producers and pipelines had been stymied by President Obama, most notably in his overruling Congress to block construction of the Keystone XL pipeline .  On the other hand, the alternative energy and climate change policies are less likely to receive as much support going forward from a Trump administration as they did under President Obama. Based on this, it’s not a surprise to see energy producers trading higher and alternative energy companies like First Solar and Canadian Solar tumbling.

In Canada, gold producers have been rallying with the gold price climbing in rally mode following the election. As often happens with a new president coming in regardless of party, traders appear to be anticipating that political uncertainty may remain elevated for some time.

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