NEW YORK (BLOOMBERG, AFP) - One of the biggest single-day reversals in stock market history left the Dow Jones Industrial Average just shy of a record close as investors assessed a Donald Trump presidency.
The Dow climbed 1.4 per cent to 18,589.69 on Wednesday (Nov 9), briefly surpassing its Aug 15 high before paring the advance in the final 30 minutes, while futures traded in a 1,172-point range, going from down 867 points to 305 points up.
While first-day moves after Election Day are notoriously unreliable, US and Europeans stock markets were green on Wednesday, aided by timely hedges and the first blush of optimism over Mr Trump's economic programme. The gains flew in the face of dire warnings from Wall Street strategists of a sell-off after a Republican victory.
"People focus on the fact that his acceptance speech kind of changed the direction of the market," said Mr Krishna Memani, New York-based chief investment officer at Oppenheimer Funds, which oversees US$223 billion (S$312.1 billion). "It was far more conciliatory and far more fiscal-focused than these acceptances typically are. That made a world of difference."
The market came around quickly just a week after enduring a nine-day sell-off that was the longest since 1980. Futures went from the brink of triggering Chicago Mercantile Exchange limit-down trading curbs around midnight as votes were being tallied to extending the biggest three-day advance since June.
"Our base case is we're more likely to see a more moderate president than we saw as a candidate, and the market's agreeing with that," said Mr Lowell Yura, head of multi-asset solutions for BMO Global Asset Management in Chicago, which oversees US$238 billion.
European markets warmed to what had seemed like a long-shot candidate. The Stoxx Europe 600 Index erased a slump of as much as 2.4 per cent to end 1.5 per cent higher in the biggest reversal since European Central Bank president Mario Draghi said in March he didn't anticipate further rate cuts.
"If fiscal spending comes up front and generates growth, ultimately that's good for Europe," said Mr John Haynes, head of research at Investec Wealth & Investment in London. His firm, which oversees £27.8 billion (S$48.3 billion). "There's no reason to think Trump is anti-Europe rather than pro-America, and the recovery in Europe should stay on track everything else being equal."
Even so, one day's gain doesn't make a rally and uncertainty over the newcomer politician is likely to linger, particularly for investors who crave clarity, said Mr David Schiegoleit, a senior portfolio manager for US Bank's Private Client Reserve. If he demonstrates more of a "pragmatic tone" like his victory speech, it will go over well.
"If President-elect Trump keeps the same communication style, that could rattle markets," Mr Schiegoleit said. "Bombastic statements don't bode well for certainty or clarity."
CMC Markets analyst Jasper Lawler noted: "Things are never black and white and Donald Trump can be a positive force, or at least a less negative force than Hillary Clinton, for some sectors of the stock market."
US pharmaceutical stocks surged as Mrs Clinton's campaign for cheaper drugs was off the table after her defeat, with Pfizer jumping more than 7 per cent, and Eli Lilly, Sanofi, Bayer and others all sharply higher.
Defence stocks also rose, on expectations of higher US military spending, with Lockheed Martin gaining nearly 6 per cent and Northrup Grummon up 5.4 per cent.
Banks also saw their shares gain on expectations of reduced regulation, with JPMorgan Chase rising 4.6 per cent, Goldman Sachs gaining 5.9 per cent and Wells Fargo up 5.4 per cent.
But Spain's second-biggest bank, BBVA, fell nearly 6 per cent, punished by investors for its high exposure to the Mexican market.
The Mexican peso - which has been battered by Mr Trump's anti-Mexican rhetoric including promising construction of a border wall - continued its declines.
The US dollar recovered from early losses and strengthened slightly against the euro.
In Asia earlier, Tokyo stocks collapsed 5.4 per cent and Hong fell 2.2 per cent.
Moscow however rose almost 2 per cent on hopes of improving US relations as President Vladimir Putin congratulated Mr Trump.