Markets Plummet on Trump Victory
The futures markets tumbled as it became clear that Donald Trump would become the 45th president of the United States. The real financial pain may not have started yet.
In the wake of news that Donald Trump was winning the U.S. presidency, global futures markets took a hard dive south.
As the early morning hours approached and Hillary Clinton’s path to victory narrowed to a quixotic trickle, futures in the S&P and Dow Jones Industrials tanked 5 percent and more than 800 points, respectively. The currency of a country from which Donald Trump believes rapists originate (the Mexican peso) plummeted 8.5 percent against the dollar, according to CNBC. Another indicator that investors were freaking out: Gold futures experienced a little jump, up 3 percent.
Yet as dawn broke on the East Coast, the financial freakout appeared to ease—European shares were down less than 1 percent, the peso halved its losses, and even the Dow futures halved its projected opening nosedive to about 400 points, or about 2 percent.
Futures markets are notoriously jumpy, and they hate uncertainty. Thus, a Trump presidency is a scenario that is deeply unmooring. Trump has never had experience as an elected official, and his business record isn’t one that necessarily inspires confidence in moneyed observers. While Clinton’s fiscal policies had been spelled out during her campaign, Trump’s were much more vague.
In previous recent seismic international events like Brexit, futures markets have been similarly woozy.
While dives in the futures market are noteworthy as indicators of investor confidence in the outcome of events, they’re not necessarily solid and concrete manifestations of real wealth’s loss and gain.
As in similar seismic international events, speculated-upon losses don’t become real losses until a couple of things happen. First of all, these are futures, which means they’re speculation on what the market will do once the market opens Wednesday; essentially bets on the direction of an index’s movement. Losses don’t become real losses until they play out in the actual markets, and until the person who owns the actual stocks sells them at a lower price than the price at which they bought them, the loss is only a number and not a part of a bottom line. In other words, the markets may be predicting that your 401(K) might lose a metric ton of value on paper, theoretically, but until the value of investments are actually withdrawn from one’s accounts, losses remain theoretical. Futures tanking are akin to investors betting that other investors will in the future not like a specific event, like a person betting on the fact that people might pay less to bet on the Minnesota Vikings when they’re playing poorly.
Dow tanks is a sexy headline, but until the Dow actually tanks, it’s all speculative.
In London this morning, for example, futures fell and the blue-chip FTSE index took early losses of as much as 2 percent when the markets opened, but that early slump was short-lived and the fall was reduced to around 43 points in the first hours of trading.
Still, such a strong vote of underconfidence from something as collective yet aristocratic as the financial markets can’t bode well for a future Trump administration.