Trump Wins, Markets Plunge then Rebound

9 November, 2016

It appears that polls and projections in the past few days and weeks have turned out to be severely inaccurate in predicting the outcome of the 2016 US presidential election. After a long and heart-pounding election night, Donald Trump achieved a market-shocking upset by pulling ahead from behind and ultimately defeating Hillary Clinton to become the new President-elect of the United States. Additionally, Republicans retained control in both the US Senate and House of Representatives for a clean GOP sweep.

When the votes began to be tallied early in the night, it appeared that Clinton’s path to victory would be as clear as previously forecast. As the lengthy night wore on, however, pivotal swing states that were crucial to Trump’s chances of victory began to lean increasingly towards the Republican candidate. These key states included Ohio, North Carolina, and Florida, and then extended onto other battleground states that intensified Trump’s momentum.

As Trump’s lead widened and his unlikely path to victory became increasingly evident, financial markets reacted with exceptional brute force. As might have been expected in anticipation and realization of such a surprise outcome, stock index futures (including the S&P 500 and Nasdaq) plunged by around 5% at one point, while the US dollar embarked on a dramatic dive against most of its major counterparts, including both the euro and Japanese yen.

Perhaps the most notable exception to this dollar move was the reaction of the USD/MXN currency pair. As the Mexican peso made an unprecedented plummet on renewed fears of a Trump presidency, USD/MXN shot up to a new and extreme all-time high around 20.77, far above the previous record high of 19.90 that was hit in September.

Meanwhile, as the US dollar dropped against most of its other key rivals and the perception of overall market risk rose substantially, the price of safe-haven gold surged by almost 5% at one point in the night.

As of the early hours of Wednesday, the initial market reactions to Trump’s surprise success have rivaled, and in some respects exceeded, the market moves in the immediate aftermath of June’s equally surprising vote by the UK to leave the European Union (Brexit).

How these extreme initial moves ultimately play out further into the week and month remains to be seen. But as various markets have arguably overshot in reaction to election night, counter-moves could soon be expected as the world and the financial markets become accustomed to the concept of a President Trump.

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