Megan Rule | Staff Writer
In November, the stock market fell nearly 900 points on Election Night, then had one of the biggest recorded recovery surges with major U.S. indexes reaching all-time highs. With the inauguration taking place last week, it’s time to look at where the market is heading at the beginning of the President Donald Trump era.
Dr. Shane Underwood, associate professor of finance and the Lacy Chair of Banking and Finance, said he doesn’t think there will be as much of a currency reaction with the inauguration. He said that this may be more of a global event than previous inaugurations, but if Trump says nothing unexpected, then there won’t be anything new.
“Anything you see right now is what you would see out of the market on any day. The inauguration itself has nothing unanticipated,” Underwood said. “The only difference is something gets said that spooks the market.”
Underwood said that in the weeks following the election, there was a realization that Trump will do a lot of “pro-business” things. Thinking in terms of regulatory regimes, Trump really wants to roll back the The Dodd-Frank Wall Street Reform and Consumer Protection Act, which is a part of the financial sector. In doing so, bank stocks will realize that what used to hinder companies in this sector will improve going forward, sending stocks on a tremendous run up.
Tuesday afternoon, Trump signed executive orders to advance both the Keystone XL Pipeline and the Dakota Access Pipeline. With both these orders being major job creators, the market soared almost immediately. This resulted in new highs and brought the Dow Jones just 88 points short of the infamous 20,000. Early Wednesday morning, the Dow rose above 20,000 for the first time as part of the post-election rally.
On the other hand, there have also been signs that people are more worried about inflation. U.S. Treasury yields have gone up with a concern that proposals for infrastructure spending and cutting taxes will lead to deficits and higher inflation down the road. Business Insider recently referenced phases in which the Trump economy will roll out and the various impacts it will have.
“Markets see Trump dismantling regulations and reducing taxes,” George Soros, chairman of Soros Fund Management, said in press conference hosted by Bloomberg at the World Economic Forum in Davos, Switzerland. “Right now the uncertainty is at a peak because it’s impossible to predict exactly how Trump is going to act.”
Lloyd Blankfein, CEO of Goldman Sachs Group, the bank whose shares have been the best Dow component since the election, isn’t sure what will happen as Trump takes office either, according to MarketWatch.
“There’s other things, there’s other factors at work here,” Blankfein said in an interview with CNBC at the World Economic Forum. “I am dying to look back at this and like the outcome of it, and I’m certainly going to behave in as supportive of a fashion as I possibly can to make sure that I like it.”
Trump’s tweets have been another topic of conversation, and this is because people don’t know what he’s going to say, Underwood said. This produces more volatility, so if Trump tweets anything out of the ordinary, then the market reacts very strongly, and there’s a quick reaction. Underwood referenced the recent press talk about medicare, when biotech stocks were killed but started to level out when the market realized there’s a process in which stocks get put into place.
“I think it will be a gradual incorporation,” Underwood said. “We can’t really see what’s going to happen right now, and I think that as pieces of that come into place you’ll see some big reactions, but I don’t think there will be huge sudden reactions over the next few weeks.”
Market reactions to speeches were proven true this past Tuesday when British Prime Minister Theresa May gave a speech on how Brexit will be carried out. At the end of the speech, the British pound surged, according to Business Insider. A few hours after the speech ended, the pound was trading at a 2.65 percent gain.
Underwood said the possibility of other currencies’ reaction to the presidential inauguration comes into play when tariffs become a discussion topic. If there are big announcements about potential tariffs on imports from a particular country, there will be big effects. However, at this point, nothing is expected.
“It will continue to be fun to watch as someone who enjoys the market perspectives,” Underwood said. “Whatever you want to say about policies, it’s going to be interesting.”