09/11/2016 – In today’s digital age the speed at which we communicate and source information is frighteningly fast. With this speed comes the very real risk that you may read something that may change your mind on an decision you were going to make, regardless of whether your mind was made up a week, month or year prior.
In the lead up to the Brexit vote the bookies were calling for a “Stay Vote” (and historically they have been a very good predictor of a result) yet momentum changed at the last moment and we all know what happened next. The vote to leave won the day and the share markets reacted quickly and negatively because they were surprised. The market never likes to be surprised.
We are seeing the same pattern emerge with the US election. Up until last week the market was quite settled in the fact that Hillary Clinton was leading the polls. Then we saw a further development with more emails coming to light that may have jeopardised her Presidential chances however this week the FBI announced that they hadn’t changed their original opinion. Calm was restored and the market factored in that Hillary was a strong chance of winning the Presidential vote with a strong gain in financial markets earlier this week.
And then there was today’s surprise. Remember I said that markets don’t like surprises. Was it last weeks announcement about the Hillary emails, did the traditional non-voting public decide to come out of hiding and have their say, or did his famous hairdo finally gather the extra support that was needed to get him the vote? Its impossible to say but one thing is for sure is that the markets have reacted negatively to this surprise.
As I type this post the ASX All Ordinaries has closed down 103.9 points or 1.94%. Most people would say that’s fair enough given the wildly erratic campaign that he’s run and the uncertainty that maybe around the corner but it’s important to focus on the net tangible result a potential Trump victory would have on particular companies, sectors and countries. Given his stance on building a big wall between the US and Mexico the fact that the Mexican Peso plunged by 13% is understandable but how is a 2.55% fall in the share price of Ramsay Healthcare justifiable? They don’t have any operations in the United States. And with the possibility of a very large concrete wall going up on the US southern border why isn’t the share price of Boral Ltd going up (closed down 1.69% to $5.83) given their US concrete operations?
The answer is in today’s financial world the market reacts to the surprise and then calculates the damage (if any) later. We saw that with the Brexit vote. The night before the results of the vote the ASX All Ordinaries index closed at 5358. On the day of the vote the All Ordinaries closed down 166 points (3.09%) to 5192. Six days later the dust had settled and the market had rebounded back to 5365, 7 points higher than the day before the Brexit vote.
Will we see the same result with the US election? Its too early to say just yet because there is a lot of analysis to be undertaken should Trump get in. Does the result mean that Janet Yellen will hold of raising interest rates due to the surprise? Isn’t that a positive if she does kick the interest rate can into 2017? We all know the market has been just as concerned about rising US interest rates as the US election because we saw it rally in September when she decided to hold off.
There will be companies, countries and currencies (anyone interested in a cheap holiday in Cabo?) that will benefit from a Trump presidency and there will be others that won’t do so well. At the end of the day the market is a market of stocks and the companies and sectors that have little to no exposure to a US election result will continue to operate tomorrow like they did yesterday.
And remember. Don’t surprise the market.
This post was originally produced on LinkedIn by our Managing Director, Brett Evans. To view this click here.