U.S. stocks held up remarkably well and jumped Wednesday as the major indexes pared steep losses after markets careened out of control in volatile trading overnight.
A speech by U.S. President Elect Donald Trump helped reassure investors after his upset win vs. Hillary Clinton caught investors around the globe by surprise.
The Dow Jones industrial average ended up 257 points, or 1.4%, after tumbling as much as 800 points in late-night futures trading.
The broad Standard & Poor's 500 stock index, which was down 5% overnight and hit a trading halt designed to limit losses, erased its steep declines and climbed 1.1%. The Nasdaq composite also gained 1.2%.
Theories on why the initial market backlash to Trump’s shocking win has given way to stock market gains are starting to roll out. U.K. firm Capital Economics cited a few key reasons:
The market reaction from Brexit in June, a sharp drop followed by a rebound set a precedent.
Trump’s “gracious” acceptance speech “encouraged hopes that he will moderate his more extreme positions.”
Despite a GOP sweep of the White House and Congress, checks and balances remain due to Trump’s differences with “fiscally conservative” Republicans.
The economic backdrop is “generally improving” and supportive of assets.
Traders also appear to be evaluating the potential economic benefits from Trump's plans to cut taxes and spend money on infrastructure projects that would put Americans to work, Martin Gilbert, CEO of Aberdeen Asset Management, said via email.
"The increased prospect of tax cuts and a generally pro-growth set of policies from Trump, aided by the Republican clean sweep of Congress, has seen some of the initial (kneejerk) reaction (to sell stocks) to reverse," Gilbert said.
"Risk aversion is likely to remain strong in the U.S. session today," says Craig Erlam, senior market analyst at OANDA, adding that he thinks "we may have seen the worst of the moves in the markets" following Trump's surprise win.
The key question now is how long the market shock will last?
Back in late June, the U.S. stock market suffered a two-day drop of 5.6% after the surprise Brexit vote in which Britain voted to exit the single-market European Union. The stock market, however, came to its senses and fully recovered 10 trading days later.
The Trump-driven tumult, however, may keep the uncertainty level high in markets for a bit longer, says David Joy, chief market strategist at Ameriprise Financial.
"I think the environment will stay uncertain for a while," Joy told USA TODAY, citing the shock factor of Trump's win and the many unknowns related to what's Trump policies will be and what the chances are of them being enacted by a GOP-controlled Senate and House of Representatives that are not great fans of the president-elect after a bruising presidential campaign.
"We will get through this but the adjustment process will take longer," says Joy.
World markets were very volatile through election night in the U.S., with stocks, currencies and bonds swinging wildly as investors factored in the reality that the Republican businessman could best Democrat Hillary Clinton in the 2016 presidential race. Trump, who has never held public office, defeated Clinton to be elected the 45th president of the United States on Wednesday. Wall Street had been pricing in a Clinton win.
Japan's Nikkei 225 plunged 5.4% to close at 16,251.54 while Hong Kong's Hang Seng index lost 2.2% to 22,415.19%. The Shanghai Composite index lost 0.6% to finish at 3,128.37.
European markets opened sharply lower before paring its losses and moving higher. Germany’s DAX index was up 1.2% after opening down nearly 3%. France's CAC 40 was in positive territory by 1.1% after an earlier decline of 1.5% and Britain's FTSE 100 gained 0.6%.
Earlier Wednesday, the Dow Jones industrial average was down about 638 points, or 3.4%, in futures trading, leading to fears that if the Dow's losses stuck when regular trading resumes today, the point loss could top the 610-point Brexit drop back on June 24. The Dow's earlier level would also challenge the record one-day plunge of 777.68 points back on Sept. 29, 2008, during the financial crisis.
Kathleen Brooks, research director at Forex.com, said that Trump “definitely sounded more presidential than he has done at any stage during the election campaign” during his victory speech, in which he praised Clinton," the Associated Press reported.
"I pledge to be president for all Americans. We are going to rebuild our inner cities... We will rebuild our infrastructure, which will become second to none," Trump said in his relatively soft victory speech.
Investors rushed into perceived havens, such as gold, which is up $11.40 an ounce, or 0.9%, to $1,285.90.
The Trump strength in this election is similar to what happened during the surprise Brexit vote, which was characterized by untrustworthy polls, rising populism and an angry electorate.
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