Investors did not expect to wake up Nov. 9 to a President-elect Donald Trump, and futures for the Dow Industrial Average, which fell more than 700 points Tuesday night, showed it.
But the drop had reversed course by morning, with the Dow, S&P 500 and Nasdaq experiencing no worse than minor losses.
Polls throughout much of the campaign had Hillary Clinton in the lead. Many investors planned accordingly, hoping for a generally status quo market over the next four years under a predictable Clinton administration.
Then Trump’s win threw everything into uncertainty. Some investment firms, however, are reassuring clients that they have no plans to make any rash decisions.
“It’s obviously not the outcome that the markets had expected, or, frankly, we expected,” said Dan Eye, CFA for Harrisburg-based Roof Advisory Group.
But, he added, knee-jerk market declines are common after presidential elections. Domestic equity markets have fallen after 15 of the last 22 elections, by on average 1.8 percent. And they often recovered within weeks or months of Election Day.
The markets got off to a shaky start Tuesday night when a Trump victory seemed like a growing certainty. But the president-elect’s relatively moderate, and at times conciliatory, victory speech eased some of the early turmoil Wednesday morning.
That bounce-back continued into the market’s open. The result, while not a great day for Wall Street, was a Dow that avoided the Brexit-level plunge some investors had feared: the 610-point drop that happened June 24 after the United Kingdom’s decision to drop out of the European Union.
Wednesday’s quick recovery likely occurred in part because of the lessons investors learned after Brexit, said Bill Stone, chief investment strategist for PNC. After Brexit, he said, the markets rebounded relatively quickly, and that fact may have been a comfort to investors today.
Trump’s victory was also a boon for some industries that expect to benefit from his proposals, CNN Money noted Wednesday morning. Banks like JPMorgan Chase and Bank of America were up in anticipation of Trump’s promise to roll back Dodd-Frank regulations. Defense stocks, like Lockheed Martin, also saw a boost because of Trump’s plans to increase military spending.
As for long-term effects of a Trump presidency, Eye noted the person sitting in the Oval Office is only one of many factors affecting investments.
The overall economic picture for the U.S. is good, he said. Corporate earnings have turned positive after five straight quarterly declines, economic growth has rebounded from earlier in the year and employment rates have steadily grown.
“There’s a big picture to look at here,” Eye said.
Some of Trump’s policies, however, have made investors nervous. Trade and health care specifically could pose issues during Trump’s administration. Concerns about those industries, trade especially, likely contributed to the initial volatility the markets saw Tuesday night.
The split between the “winners and losers” of Trump’s election – trade and health care versus the industries looking forward to loosened regulations – is one of the more out-of-the-ordinary traits of this election, Stone said. The bifurcation might have been less profound under a candidate with more consistently right- or left-leaning proposals.
Still, only time will tell which campaign promises Trump will, or will be able to, keep. Those answers are far from certain given the fierce rhetoric that underscored much of the campaign, Eye said.
For now, Roof Advisory is among the firms telling clients not to take a post-election slump as an indicator of problems to come.
“Fundamentals are looking better than they have in some time,” Eye said. “You don’t want to lose sight of that.”