Just as the mainstream media and major pollsters got it wrong forecasting Hillary Clinton would defeat Donald Trump for the White House, Wall Street’s forecast that a Trump win would sink equity markets and send gold prices sharply higher also was a losing bet.
Throughout the election season, Wall Street was strongly pro-Clinton. Markets moved up along with her poll numbers and declined when they weakened. As Clinton’s average spread narrowed from a five-point lead over Trump to just 1.7 points in the weeks leading to the election, the S&P 500 posted its longest losing streak in nearly 36 years.
In fact, so pro-Hillary was Wall Street, that in a sharp reversal, the Dow Jones Industrials had one of their best days of the year the day before Election Day. The index spiked 371 points following the previous Friday’s announcement that the FBI had found no new evidence and would not warrant charges against Clinton, thus boosting her in the polls:
Dow surges more than 350 points in best day
since March as US election looms
U.S. equities kicked off the week on a high note, closing sharply higher on Monday after the FBI again cleared Democratic nominee Hillary Clinton over her use of a private server.
Financial markets in the U.S. and around the world had been largely pricing in a victory for Clinton over Republican nominee Donald Trump. Market expectations for Congress, meanwhile, had been for the House to remain under GOP control while the Senate flips in favor of the Democrats. (CNBC, 7 November 2016.)
Not only did Wall Street call the presidential election wrong, its “Senate flips in favor of Democrats” was yet another mainstream miss. But once again, that wrong call was not addressed by the mass-media gang who boisterously ridicule any missed forecasts from non-members while covering up their long, tainted track record of dismal failures.
In fact, so negative was The Street on Trump that on Election Eve, when votes moved in his favor, Dow futures tanked some 800 points and gold spiked over $50 per ounce.
However, just hours later, in a sharp reversal, a Trump election rally sent the blue-chip stock index to new highs. The Dow racked up its best week in five years. The spike continued as all four major US stock indexes closed at record highs on the same day for the first time in 17 years.
As the markets and dollar gained strength, gold prices plummeted 8.5 percent from the Election Day high, falling over $120 per ounce to a 5-1/2 month low.
The belief that Trump would keep promises to weaken federal regulations, lower corporate taxes and stimulate the economy by boosting infrastructure spending not only boosted the markets, the dollar tested its highest level in almost 14 years. Thus, the higher interest rates rise, other yield-bearing assets become more attractive than gold.
Also, with markets betting that inflation would increase and the Federal Reserve would raise rates in December, some $1.7 trillion was wiped from the value of bonds worldwide in the week following the election. “Money managers and bankers have been watching the selloff in fixed income assets, which are an abrupt reversal from earlier this year, when central-bank stimulus helped push yields on more than $13.5tn of bonds below zero. That figure has fallen to $11.8tn, as investors bet that the bull market in bonds is ending.” (Financial Times, 18 November 2016.)
DOLLAR UP, EMERGING MARKETS DOWN
With the CME Group’s FedWatch raising market expectations for a December Federal Reserve interest-rate increase at 95 percent probability, plus favorable retail, construction jobs and wage data, the dollar racked up its longest winning streak against the euro since that currency’s 1999 inception. It jumped 4.4 percent in the weeks following Election Day.
Around the world, from Mexico, Russia and Brazil to Turkey, Indonesia and China, currencies hit new lows and/or tumbled to multi-year lows against the dollar. Some central banks raised interest rates, sold dollars and bought government bonds to shore up plunging currencies. Others, such as Malaysia, cracked down on futures-market traders in desperate attempts to stem the tide of currency declines and/or currencies flowing to safer off-shore havens. – TJ