Clausen: The Dow reacts well to Trump
- Why the markets' reaction to Donald Trump's victory may not be so surprising.
Big breath, that 401(k) is still there.
Smart investors have seen gains since President-elect Donald Trump gave his victory speech early Wednesday morning, even as protests and social media feeds emerge over his no-holds-barred campaign rhetoric.
But his victory speech Wednesday morning started to set a different tone for the country. He started to look and sound presidential by saying it's time to "bind the wounds division" and "have great relationships" with nations willing to get along with us.
It sent markets buzzing and pushed the Dow to an all-time high. It also was somewhat surprising because everyone seemed to think Trump had no chance to win and such surprise events, along with uncertainty, usually don't translate well with investors.
In June, for example, the American markets took a big dive when the United Kingdom decided to leave the European Union.
Investors would have to go all the way back to 1948, when Harry Truman defeated Thomas Dewey for president, to find a comparable upset in the presidential race, according to a paper by industry analysts at the New Davis Research Group. The Dow dropped nearly 4 percent, the third-largest, post-election drop since 1900.
One of those other two swings occurred when Barack Obama was elected in 2008. The Dow dropped 5 percent in the first day after his victory and 12.5 percent within 10 days. The Dow eventually touched a low at 8,037.61 in February 2009 due to the recession before it started to climb higher.
With virtually every surprise, the market tends to recover from the initial shock and even averages a gain of 9.2 percent in the following six months, according to the research paper published on Wednesday.
History also shows us that the markets like it when Republicans control Congress and the presidency. The combination has produced above-average gains of roughly 7 percent on a nominal basis, or before adjustments are made for inflation, according to the research paper.
There might also be another reason why the Dow has hummed along, and it might have to do with Trump’s agenda.
Corporate America — particularly those in the business world I’ve talked to in Rochester and throughout the state — have felt assailed by the left. Minimum-wage increases, new overtime regulations and lawmakers unwilling to move on the issues most concerning to business owners have left many feeling bitter.
Trump may have a few things up his sleeve that the markets and businesses may like.
He’s already talked about investing in roads, bridges and infrastructure that would help keep construction crews busy. Interest rates are also likely to rise under his watch, which is something the local banking sector has wanted for some time now.
Will he follow through to craft new trade deals, lead deregulation efforts and pass some sort of stimulus?
If so, he’s more likely to do it with a Republican-controlled Congress.
And that's why investors might like what they’re seeing right now in the newly elected president.
Todd Clausen is the work-life reporter for the Democrat and Chronicle. Email him at TCLAUSEN@Gannett.com or call (585) 258-9883.