The Trump Bounce And The Monthly Market Risk Update: November 2016

Although many were predicting a significant pullback on Mr. Trump’s election, we, in fact, got a fairly significant advance. What’s up with that? I suspect there are several reasons.

1. The nine-day pullback before the election—the longest since 1980—certainly was pricing in some probability of a Trump win. When he actually won, the uncertainty risk disappeared. That alone could have driven markets back up.
2. A Republican sweep may have been perceived as positive for business and the economy, which would also have supported markets.
3. Markets tend to sell the rumor and buy the news, and this could have been just a normal reaction.

Whatever it was, clearly the financial markets are not upset by the Trump victory.

Market and economic fundamentals

On a deeper level, however, I...