U.S. stocks little changed as investors weigh Trump win impact

U.S. stocks were little changed in the aftermath of Donald Trump’s surprise presidential election win, as speculation the Republican will pursue business-friendly policies offset some of the broader uncertainty surrounding his ascent.

The S&P 500 Index lost 0.2 percent to 2,135.32 at 9:35 a.m. in New York, after equity futures earlier tumbled as much as 5 percent as investors rushed to price in the election win. A knee-jerk selloff in global stocks and a rally in haven assets eased amid speculation that Trump would increase fiscal spending to spur economic growth, and as he struck a more conciliatory tone in his first speech as president-elect.

“Markets generally don’t like one party to have complete control,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “The Republicans have been a market-friendly party. I think part of the reason the market rallied is because it looks like they’re going to take all three. But Trump is this big question mark.”

A Trump victory had been portrayed by analysts as having the potential to unhinge markets banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. While Republican control of both houses of Congress may enable the party to enact sweeping legislation that would be considered pro-business, concern persists over the impact from Trump’s pledges to clamp down on immigration to the U.S. and renegotiate free-trade agreements with countries including Mexico.

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Equity investors sent equity futures tumbling overnight as it became clear Trump would pull off a historic upset. S&P 500 futures tumbled by the maximum 5 percent loss permitted on the Chicago Mercantile Exchange before trading curbs are triggered, then pared their decline to less than 1 percent by the open.

“In his speech, we saw Trump strike a markedly more emollient tone than he did throughout most of his campaign, which somewhat calmed the initial reactions,” said Ken Odeluga, a market analyst at brokerage City Index in London. “There is also the expectation that with Republicans in the Senate and House of Representatives as well, the party will exert a more benign influence on the White House. Still, it’s a shock and there is no getting away from it.”

The S&P 500 retreated following a rally that was sparked Sunday night on news the FBI had resolved its investigation of Clinton’s e-mails. Heading into yesterday’s vote, most polls had the Democratic candidate ahead by several points. The benchmark gained 2.6 percent on Monday and Tuesday, its third-biggest gain ever in the two days before a presidential election, following its longest selloff in 36 years.

The stock market showed itself to be more comfortable with Clinton taking over the White House as Trump is considered less predictable following inconsistent policy positions during the race. At stake is leadership of the world’s largest economy at a time when America is divided over immigration, trade and the country’s global role.

As the initial turbulence eased, odds for a Federal Reserve interest-rate hike in December climbed back near levels seen before Trump’s victory, after plunging below 50 percent as the outcome unfolded. The market-implied chance of a move next month is 78 percent, down from 86 percent Tuesday afternoon.

“The U.S. that Trump inherits is doing pretty well economically,” said Nandini Ramakrishnan, a strategist at JPMorgan Asset Management in London. “From an investment perspective, this is not something that we would say is entirely negative as the market may see just this morning. There may be potential opportunities with some of these selloffs.”

The walloping in stocks will test the reliability of hedges built up over the last month as the election neared. Some of the biggest were tied to swings in the CBOE Volatility Index, the options-derived gauge of market stress which saw its longest streak of gains ever last week. The measure of market turbulence fell 6.4 percent on Wednesday.

“Hedges are pretty tricky when it’s such a binary outcome of results, meaning that the initial reaction for a Trump victory was clearly going to create some volatility around the equity market,” said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management which oversees $20 billion. “It’s always hard to have effective hedges when there are expected outcomes.”

Regardless of how equity prices react today, next-day moves in the S&P 500 are useless in telling what comes after, as gains or losses over the first 24 hours predict the market’s direction 12 months later less than half the time. In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 percent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.

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