Stock analysts caution investors after Trump victory

McClatchy-Tribune Information Services

November 7, 2016

Stock analysts are warning investors to take a deep breath and fight the inclination to respond if the stock market tests their nerves Wednesday, as America wakes up to Donald Trumpís stunning upset in the U.S. presidential election.

Markets worldwide plunged overnight as Trumpís victory took investors by surprise.

At one point during the long evening that eventually saw Trump win enough electoral votes to become the nationís 45th president, futures for the Dow Jones Industrial Average dropped almost 800 points, suggesting Wednesday could be a nerve-wracking day. Overseas markets did the same. Japanís stock market fell 5.36 percent for the day, and European market futures fell too.

People may be more relaxed Wednesday after news of Trumpís stunning upset sinks in. Shortly after 7:30 a.m. Wednesday, Dow futures were down less than 300 points, or 1.5 percent, to about 18,000.

Similar market moves last summer provide a warning to people wondering if they should dump their stocks and run for safety. On June 24, as the markets were shocked by the vote for the Brexit, or the decision by the British people to leave the European Union, the Dow dropped 900 points during the two days following the vote.

Analysts predicted the vote would set off a European recession and infect the U.S. But within a couple of weeks, the market recovered as the dire consequences of the vote didnít materialize and investors who sold their stocks were kicking themselves for their haste.

Analysts will debate in the days ahead what some of Trumpís positions and trade policy and immigration may do to the economy. Leading up to the election, they warned that Trumpís protectionist policies could stunt global commerce.

"People assume there will be a dramatic change, but I donít think thatís accurate," said Jim Paulsen, Wells Capital Managementís chief investment officer.

He noted that presidents cannot take action on their own. They must work with Congress and politicians with different points of view. As the political process plays out, Paulsen said, "I donít think there will be a lot of change."

As the realities sink in, he expects the stock market to recover as it did within a few weeks of the Brexit vote.

The most extreme reaction in the market as the vote was being counted Tuesday night was in the Mexican peso, which fell about 13 percent on the assumption that business between the U.S. and Mexico could be stifled by Trumpís pledge to change trade policy.

Faced with uncertainty about Trumpís plans, investors acted abruptly to sell stocks. They bought gold, Japanese yen and U.S. Treasury bonds. As they moved money into bonds, U.S. Treasury bond yields fell about 10 points.

Yields could remain down somewhat if investors think nervousness about the economy and the stock market will continue and keep the Federal Reserve from raising interest rates in December. If the Fed delays, that would calm investors worried that rising interest rates could put a damper on the economy and stock market. Higher rates would make it more expensive for businesses to borrow money and perhaps cause them to delay expansions. Higher rates also can deter individuals from buying homes.

But Jack Ablin, chief investment officer for BMO Private Bank, expects the market reaction to the Trump victory to be short-lived, and he thinks the Federal Reserve will raise rates.

Even if the stock market as a whole quakes amid concerns about a Trump presidency, analysts expect certain segments of the market to do well. Coal-mining stocks and coal-using utility companies, for example, could do well, and the energy sector in general rose during the campaign when Trump was doing well in the polls. Analysts also expect health care stocks to get a lift if Trump presses for a remake of Obamacare, as discussed in the campaign.

As Trumpís positions are debated in the days ahead, Paulsen said the market could be volatile. But since Paulsen thinks there will be more talk than extreme changes in government policy, he said he would use downturns in the stock market as an opportunity to buy stocks.