It was possible, in the hours after Donald Trump’s shocking win, to relive the 2016 campaign through a tour of the reeling financial markets. Stocks plummeted as investors accepted that a man best known as a reality-TV star when he entered the race would assume the world’s most powerful office. Mexico’s peso was crushed on assumptions Trump would trash trade agreements and deport immigrants. Russian equities jumped on hopes that Vladimir Putin and Trump would be allies.
Gold, seen as a haven in perilous times, surged as the U.S. military establishment prepared to give nuclear codes to a snappish late-night tweeter. Long-term U.S. Treasury yields spiked, a reflection of Trump’s allusions to cutting taxes, increasing government spending, and defaulting on America’s debt. In each asset class, there was an attempt to put into numbers an event that one struggles to put into words.
That many of the swings abated by the morning—the U.S. stock market gained in post-election trading—could be interpreted as complacency, or even optimism. But it’s likely something else. During the campaign, Trump gave few details about his economic proposals when he wasn’t making direct contradictions. That means investors have precious little on which to base rational plans. The same goes for policymakers and chief executives. Trump’s sketchy program complicates the work of the Federal Reserve to guide the U.S. economy and gives companies no certainty with which to plan investments, and that’s before considerations of whether his hostility to free trade will trigger inflation, recession, and unemployment—and if he’ll replace Fed Chair Janet Yellen when her term is up in 2018.
For investors who welcome an injection of chaos into the markets—volatility creates more targets to bet on—trading the Trump administration could prove as impossible as predicting his political rise. Even under normal circumstances, betting on presidential politics is risky. Anyone shorting insurers ahead of President Obama’s push for the 2010 Affordable Care Act would have been stung when those companies’ shares rose. Nevertheless, such trades are already in place.
The day after Trump was elected, bank stocks climbed as much as 6 percent on the theory that he will pare or repeal Dodd-Frank’s set of financial regulations. Wind power fell while coal rose, and one private prison operator surged as much as 60 percent in anticipation that Trump will need capacity for a new population of immigrant detainees. With no threat of stronger gun control laws under a Trump administration, investors figured, fewer people will rush out to stock up on firearms. Shares of Smith & Wesson plummeted 16 percent when markets opened.
In a post-election report, Anthony Chan, JPMorgan Chase’s chief economist, warned against making long-term assumptions based on markets’ short-term reactions. “In every presidential campaign in modern history, the message on the campaign trail has rarely matched the reality of what investors have seen long after the party horns and hats have been put aside,” he wrote. No investor can truly know what’s coming.