Stock Markets Considering the Winning of Trump - Finance Paper Example

However, after the elections, the stocks returns started to rise although in some sectors. In fact, after Trumps win, the US markets closed up 1.4% on 10th November 2016. Mainly, S&P hit a one-month high, and the Dow Jones index rose by 70 points (Decambre 2016). Shares in steel industries, defense companies, and pharmaceutical firms increased as more traders anticipated increase in military spending, infrastructure projects, and less pressure on medicine prices. Similarly, Trumps win affected others markets globally. For instance, the European markets ended higher that before the elections. Notably, Britains FTSE 100 recovered from its early selloff and exhibited a rise on 9th November 2016.

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Core Analysis

Political variables are of significant influence to the stock market. As mentioned above, presidential elections lead to an increase or decrease of shares depending on the policies of the incoming president. Economists and businesses strive to avail adequate and relevant information to investors by giving predictions to help them invest in the most viable shares. Apparently, they predicted Trumps failure coupled with a drop in shares (Domm 2016). According to Barnes (2009), the market efficiency theory argues that a stocks price will reflect all the available and relevant information fully at any given time. Furthermore, all stocks trade at their fair value for they reflect all available information. According to Fletcher (2016), the global capital markets defied the earlier predictions of a significant drop in shares after Donald Trumps victory, which created weak market efficiency. Notably, Trumps win lead to a rise and a reduction of shares in specific firms aforementioned above. Evidently, previous presidential elections did affect stock prices too.

Notably, as Samson and Pan (2017) record, the nervousness in the stock market is still on the rise even as equities have registered a smooth path to further all-time highs in the recent days. Credit Suisses measure gauges three-month options in the S&P 500 index to establish investors willingness to give up upside to secure downside protection, thus resulting in market efficiency. To conclude, Donald Trumps presidency is a significant political variable that had and continues to record immense effect on the global stock markets. Notably, it is clear that the stock market cannot be predictable with a political variable, such as Trumps presidential victory in the short term. Moreover, as Credit Suisse argues, it can only be predictable in the long term. Therefore, it may take several months or years to establish market efficiency in the stock markets in President Trumps tenure.

References

Barnes, P., 2009. Stock market efficiency, insider dealing and market abuse. Gower Publishing, Ltd..

Decambre, Mark. "How The Stock Market Performs On, And After, Election Day". MarketWatch 2016. Web. 22 Mar. 2017.

Domm, Patti. "This Is What Could Happen To The Stock Market If Donald Trump Wins". CNBC 2016. Web. 22 Mar. 2017.

Fletcher, Nick. "Stock Markets Defy Predictions Of Slump After Trump Victory". The Guardian 2016. Web. 22 Mar. 2017.

Samson, Adam, and Pan Yuk. "US Stock Market Jitters At Post-Trump Election High". Financial Times 2017. Web. 22 Mar. 2017.

Sorkin, Andrew. "What Happens To The Markets If Donald Trump Wins?". The New York Times 2016. Web. 22 Mar. 2017.