This Trump trade euphoria is likely to fade fast
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Wednesday morning, my inbox was flooded with notes from analysts eager to talk about the election's upside for various sectors. Financial stocks, like banks and credit card companies, are poised to thrive. Same goes for private prisons and companies expected to eventually help carry out mass deportations. The crypto folks came on especially strong, cheering the success of the candidate who promised them the moon.
When the stock market opened in New York, the enthusiasm for these so-called Trump trades went into hyperdrive. The three major indexes soared, a sign of investors' relief at a swift victory. The Dow had one of its best days ever. Bitcoin surged to a new record high above $75,000.
It's possible to read the market's reaction as a kind of validation of the president-elect's authoritarian proposals. (And yeah, it feels like classic Wall Street tone-deafness to see some folks peddle the upsides of a campaign that has threatened violence against political opponents and journalists.)
But traders, on the whole, are just doing what traders do: Sniffing out potential profits they can cash out in the coming days and weeks.
When you step back from the scrum, many of those same traders will tell you the long term outlook for the stock market is murky at best.
"People don't like missing opportunities to profit, so they're rushing in and picking some stuff up that they can unload quickly enough before it all comes down," Daniel Alpert, managing partner at Westwood Capital, told me. "There's still significant volatility in this market … And I think we'll still see a significant reversal of these trades as the news begins to dawn."
A screen displays an image of Former US President Donald Trump at a Wall Street subway station.
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What just happened? It was the economy, stupid
Markets tend to favor a stable, largely predictable macro environment. The more gridlock in Washington, the better, if you ask Wall Street. Because nothing throws a portfolio into upheaval like a sudden movement, spiking inflation, say, or a surge in unemployment, or a new policy edict delivered in a Truth post, that could send ripple effects through the market.
Part of the surge is simply that big money managers had been aggressively taking chips off the table in the weeks leading up to the election, Alpert and others noted. Wednesday morning brought an unexpectedly unambiguous result.
"We were going to have a positive reaction today, agnostic of who won," Art Hogan, chief market strategist at B Riley Wealth Management, told my colleague Matt Egan on Wednesday. "There's clarity … The market is breathing a huge sigh of relief on that."
If Trump makes good on his campaign promises, you can expect a larger deficit, surging inflation and worker deportations that, beyond just being cruel and immoral, would also result in a drastic drop in economic growth.
"All of that doesn't model out well for the future," Hogan notes. "But the future is not now."
In other words, get those profits locked in while you can. Because when the reality of Trump's economic plans settles in, everything will change once again. And by all accounts, the changes he's proposing would put the world's largest economy into uncharted territory that almost certainly will drive inflation higher.
Chief among those proposals: blanket tariffs on imports, which force US companies to pay more for critical supplies and raise costs for consumers. Virtually all mainstream economists oppose tariffs on that scale and expect they would cause inflation to rise yet again.
"My worst-case scenario is that he's actually successful with his blanket tariff policies," Alpert told me. "If the House goes Republican, there will be absolutely no limits to what tariff policy Trump can enact … and to the extent that he does that, he's going to create the worst of both worlds, with higher domestic prices for goods and some services, and no overall improvement to the jobs picture."
