Donald Trump’s presidential election victory prompted mixed reactions in the financial markets. Initial enthusiasm quickly waned, leading to declines in European stock exchanges and negative impacts on emerging markets due to anticipated protectionist policies. In contrast, U.S. markets initially surged, with substantial gains for major indices and notable rises in bank and Tesla stocks. Bitcoin reached a record high before retreating, while bond yields increased, reflecting investor expectations of a more aggressive Federal Reserve stance on inflation.
Trump’s Victory and Market Reactions
Donald Trump has officially claimed victory in the American presidential election, which took place on Tuesday, November 5. While some celebrated the outcome, others showed disdain. Initially, the financial markets experienced a surge of enthusiasm on Wednesday morning, but this was short-lived as they fell back into negative territory by the afternoon. European stock exchanges closed lower, with investors weighing the potential impact of proposed customs barriers on businesses across the continent.
In Europe, significant declines were seen in major stock markets: Frankfurt fell by 1.13%, Milan by 1.54%, and London by 0.07%. The CAC 40 in Paris, which had a promising start with a jump of over 2%, ultimately finished down 0.51%. According to Alexandre Baradez, head of market analysis at IG France, the initial market response was “surprising and counterintuitive,” noting that Trump’s victory might compel China to bolster its economic support, while Europe would need to enhance its competitive strategies.
Impact on Global Markets
Other European stock markets that initially rose also reversed course by mid-afternoon. At the start of trading, London was up 0.86%, Frankfurt by 0.82%, and Milan by 0.63%. By midday, Euronext showed an increase of 0.78%, the SBF 120 by 1.3%, and the Dax by 0.9%. However, by 3 PM, Frankfurt had dropped 0.16%, and Milan was down 0.91%, with only London managing a slight gain of 0.16%. Baradez earlier remarked on the surprising resilience of European markets in light of Trump’s victory.
Emerging markets reacted negatively to the Republican’s return to the White House and the anticipated rise in protectionism. Trump has indicated plans to increase tariffs on imports to the United States, with significant hikes proposed for goods from China. Consequently, the MSCI benchmark index declined by 0.8%, and markets in China took a more severe hit, with Hong Kong’s stock exchange plummeting over 2.5%. The Mexican Peso, seen as particularly vulnerable to Trump’s policies, also fell, leading to a broader impact on other currencies.
In the U.S., Wall Street welcomed Trump’s victory with a strong opening. By early afternoon, the Dow Jones was up 3.09%, the S&P 500 by 2.09%, and the tech-heavy Nasdaq increased by 2.26%. Around 4:45 PM GMT, the Dow Jones surged further by 3.13%, while the Nasdaq rose by 2.37%, and the S&P 500 increased by 2.08%.
Bitcoin also made headlines, hitting a record high of $75,371.67 on Wednesday before retracting to around $69,000. The leading cryptocurrency had seen a 7.69% increase, reaching $74,483.26 shortly after its peak. Jim Reid, an economist at Deutsche Bank, commented that the market’s reaction aligns with expectations following the election results.
On the bond market, interest rates rose, with the yield on 10-year U.S. government bonds jumping to 4.46% from 4.27% at Tuesday’s close. The two-year rate increased to 4.28%, up from 4.18%. U.S. bank stocks thrived on the rise in borrowing rates, with JP Morgan gaining 9.66%, Bank of America 7.50%, Citigroup 8.81%, Goldman Sachs 12.38%, and Wells Fargo 13.85%. This trend indicates that investors are preparing for a scenario where the Federal Reserve may need to take a more aggressive stance against inflation, potentially slowing its rate cuts.
Some stocks have already begun to benefit, such as Tesla, owned by Elon Musk. The automaker’s shares surged over 15% in pre-market trading, reaching $289.44 in futures contracts on the Nasdaq index. By mid-afternoon, Tesla’s stock had climbed 12.97%. Andréa Tueni, a market analyst at Saxobank, attributed this rise to Musk’s close ties with Trump, who acknowledged him as a “super genius” in his victory speech.
Additionally, shares of Trump’s media group skyrocketed by more than 25% following his electoral triumph, peaking at nearly 35% before settling. By 2:50 PM GMT, the stock was up 16.44%.