Date
8 December 2016
The early knee-jerk selloff in global stocks and a rally in haven assets reversed on wagers that Donald Trump would increase fiscal spending to spur economic growth. Photo: Reuters
The early knee-jerk selloff in global stocks and a rally in haven assets reversed on wagers that Donald Trump would increase fiscal spending to spur economic growth. Photo: Reuters

Wall Street surges after sharp overnight losses on Trump victory

US stocks rose sharply on Wednesday in a dramatic turnaround from deep overnight losses as Wall Street embraced the upset presidential election victory of Republican Donald Trump.

After warning for months that a Trump White House would create uncertainty and damage sentiment, investors poured money into sectors that may benefit from the former reality TV show star’s victory, Reuters reports.

That was a steep reversal from the previous night, when financial markets reacted violently as Democrat Hillary Clinton’s path to victory disintegrated and S&P futures dropped 5 percent before a trading limit kicked in, the news agency said.

The US dollar rose to its highest level against the yen since late July in early Asian trade on Thursday, buoyed by a rise in US Treasury yields.

Prices fell on benchmark 10-year Treasury notes and 30-year bonds, pushing yields to their highest levels in 10 months on Wednesday.

The dollar was up 0.2 percent at 105.83 yen, after rising as high as 105.895, the highest since July 27.

Bloomberg said the early knee-jerk selloff in global stocks and a rally in haven assets reversed on wagers that Trump would increase fiscal spending to spur economic growth, and as he struck a more conciliatory tone in his first speech as president-elect.

Billionaire investor Carl Icahn left Trump’s victory party in the early hours of the morning to bet about US$1 billion on US equities, he told Bloomberg TV in an interview.

“I thought it was absurd that the market, the S&P was down 100 points on Trump getting elected,” Icahn said.

“The stock market is acting like a teenager. It makes a lot of demands but it doesn’t know what it wants,” Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma, told Reuters.

Gains of over 3 percent each in the heavily weighted healthcare and financial sectors pushed the Dow Jones industrial average up over 1 percent. The Dow was just shy of its record high.

The real estate sector fell 2.28 percent and utilities lost 3.68 percent. Both sectors are proxies for bonds, which also fell.

“Anything that Trump mentioned during the campaign, any industry he has mentioned, favorably or unfavorably, is moving today big-time,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

A curb on drug pricing was a key campaign theme for Clinton, while Trump has called for repealing the Affordable Care Act and loosening restrictions on banks enacted after the financial crisis.

The Dow Jones industrial average jumped 1.4 percent to end at 18,589.69, just 0.25 percent below its all-time high set in August.

The S&P 500 surged 1.11 percent to 2,163.26 and the Nasdaq Composite added 1.11 percent to end at 5,251.07.

Trading volume was the highest since June, when Britain voted to abandon the European Union.

DoubleLine Capital chief executive Jeffrey Gundlach, known as the “Bond King”, said stocks rebounded strongly from overnight losses because investors believe Trump’s policies are better for economic growth in the short-term than Clinton’s.

Republicans maintained their majorities in both chambers of the US Congress, potentially enabling the party to reshape Washington with two years of “unified” government.

“Regardless of the fact you had a Republican sweep, there are still checks and balances in place,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“So you are going to have some of your more fiscally conservative Republicans that will certainly slow [Trump] down from doing anything crazy in terms of policy changes.”

Wall Street is typically seen as preferring gridlock, or shared control of the White House and Congress, over a sweep of both chambers of Congress and the presidency.

The CBOE Volatility index, a gauge of investor anxiety, fell 23 percent and was on track for its biggest daily drop since late June.

Shares of big pharmaceutical companies gained, with Pfizer jumping 7.07 percent, the biggest driver of the S&P 500′s gains. The iShares Nasdaq Biotechnology ETF surged 8.93 percent and was on track for its biggest daily percentage gain in eight years.

Among financials, JPMorgan Chase surged 4.60 percent, while Wells Fargo rose 5.38 percent.

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