Wall Street was caught off guard and unprepared as Donald Trump inched closer to winning the presidency, a result that few strategists, investors and economists took seriously in their preparation for the election, CNBC reported.
Traders rushed into safe havens such as gold and U.S. Treasurys, but many simply did not know what they would do when trading opened Wednesday, because of the uncertainty about the New York businessman's policies.
After dropping sharply as results trickled in indicating that the Republican standard bearer had a widening path to victory, trading rebounded. The Dow Jones industrials plunged 800 points in futures trading in the wee hours of election night, but climbed back as markets opened. It kicked off down roughly 30 points, before rising slightly in early market trading. The S&P 500 also rebounded after falling 5% in the aftermath of Trump's triumph. The index was up 0.5% in early morning trading.
"I don't see money stepping into stocks. I think money is going to be scared. Unless you get a 10 percent sell-off, I don't see it ending," said Stephen Weiss, chief investment officer at Short Hills Capital Partners. "I don't think anybody's got a real plan."
None of the major Wall Street investment banks predicted a Trump win. He was "tail risk," mostly relegated to the end of lengthy reports to clients filled with tips on how to invest around a Hillary Clinton victory.
For a Trump win, "our base case is for incremental downside of 5-10 percent from the Nov 7th close, but a case can be made for a decline in the low to mid teens," said a report this week from Credit Suisse U.S. equity strategist Lori Calvasina, who to her credit devoted an equal amount of analysis to a Trump victory.
Trump's unpredictable pronouncements and opposition to free-trade agreements have made the real estate mogul unpopular with many financiers, who fear that he could disrupt global trade and damage geopolitical relationships.
Most investors were positioned for a Clinton win and a continued rally in stocks, the manager said.
"The positives of a Trump win are corporate tax reform, but the negatives are protectionism, and that is a really big thing," said Brian Kelly of Brian Kelly Capital. "More importantly what's he going to do with the Federal Reserve."
Kelly said he was likely to stick to macro-economic trades Wednesday and buy some gold. He said the "buy-the-dip" playbook of the equity bull market is likely out the window Wednesday for him and most traders.
"You got to let the market wash itself out. Maybe take a shot [at some stocks], but have to see how this washes out. The stocks to buy would be fiscal stimulus plays, the infrastructure plays, the GEs," Kelly said.
Trump's pronouncements on the financial sector have perplexed Wall Street.
On the one hand, he has pledged to dismantle much of the regulation put in place after the financial crisis, known as the Dodd-Frank Wall Street reform law. On the other hand, he has called for a "21st century" version of the 1933 Glass-Steagall law that required the separation of commercial and investment banking.
Trump has not said what that version would entail other than saying that he would prioritize "helping African-American businesses get the credit they need."
Meanwhile, other certainties are now not so definite.
"The dollar gets slammed in a sea of global uncertainty, and the chances of a Fed rate hike in December head towards 0 percent" in a Trump win, Larry McDonald wrote Tuesday morning in his Bear Traps Report, where he warned Wall Street was underplaying the Trump risk.
"Gold's best outcome is a Trump win, as political uncertainty will lead to economic and financial volatility in a hurry, and recession risk surges. Before the Donald is inaugurated," McDonald said, "gold will rise to $1400."
(Newsmax wire services contributed to this report).
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