Conventional wisdom said Donald Trump couldn’t win the White House. Conventional wisdom said that in the event of an upset, financial markets would crater. Conventional wisdom was wrong.
US stocks rallied Wednesday, as shock over the billionaire’s presidential victory gave way to measured bets that he could stoke economic growth by funding infrastructure and cutting corporate taxes.
Pharmaceutical and biotech stocks rose, freed from Democratic threats to restrict drug prices. Bank stocks gained on prospects of higher interest rates and less regulation.
The Standard & Poor’s 500 index rose 1.1 percent, shaking off a 5 percent plunge overnight as global investors had watched Trump claim state after state, despite polls leaning toward Democratic challenger Hillary Clinton.
Investors went into the election with a high degree of confidence that Clinton would come out on top, shaking off an 11th-hour e-mail inquiry by the FBI. Wall Street had favored Clinton as a more predictable hand on the economy.
But instead of taking a Brexit-like nosedive Wednesday, stocks showed surprising resilience after the votes were all counted.
Despite the vagueness of Trump’s plans so far, investors liked the sound of spending on job-creating projects, such as roads and transportation, to provide stimulus to the economy that the central bank can no longer provide with near-zero interest rates. Corporate tax cuts, too, appeared to be a welcome prospect.
“Trump has a mandate to get growth going,’’ said Kathleen Gaffney, a bond fund manager at Eaton Vance Management in Boston. If Trump is able to generate blue-collar jobs and lower taxes, she said, “those are two things that could affect our economy in a positive way.”
Trump helped ease the global markets’ early emotional reaction to his win with a conciliatory tone in his acceptance speech, analysts said. But markets were expected to be choppy in the days ahead, as investors at home and abroad try to discern more about the president-elect’s intentions.
“The good news is no more gridlock, but the bad news is we just don’t know what’s in store for the US,’’ Savita Subramanian, head of US equity and quantitative strategy at Bank of America Merrill Lynch, said on a conference call Wednesday. Over time, she said, Trump’s welcome comments on growth could be outweighed by concerns about global trade, geopolitical risk, “and the fact that Trump is new — he’s never held political office.”
On a day of jarring questions — about how polls were so off the mark and whether there are more populist insurgencies to come, in Italy and elsewhere in Europe — investors appeared to be looking for a silver lining.
The Dow Jones index of 30 blue chip stocks gained 257 points, or 1.4 percent, to close at a two-month high of 18,589.69. The US dollar climbed, after a sharp fall overnight, while the peso tumbled to a record low on prospects of wall and immigration battles with Mexico.
After initially pouring money into safe haven assets like short-term Treasuries and gold, prices of those assets eased as investors shifted back into riskier bets.
“I don’t see this, from an economic perspective, as a one-way ticket to a bear market,’’ said Jurrien Timmer, director of global macro research at Fidelity Investments in Boston. “You can argue that this populist uprising is a backlash against monetary policy – the benefits of which do not accrue to everyone.”
The Federal Reserve, whose policy of low interest rates has driven the rise of stocks and other asset values since the financial crisis, is now trying to raise rates to more normal levels, with unemployment at a low 4.9 percent and the economy growing at a slow but steady pace.
But the central bank is likely to hold off on raising rates in December, analysts said, given the uncertainty the election has created.
Meanwhile, Trump’s plan for stimulative spending, and a period of less fiscal discipline, could spur inflation and rising interest rates. That would be good news for banks, whose earnings have been squeezed hard by nearly a decade of rock-bottom yields.
Presidential politics is bound to reverberate in the markets for days. Republicans maintained control of the US House and Senate, opening the door to legislation that could restrict global trade and clamp down on immigration — measures analysts say could interrupt an economy that’s growing steadily but slowly and is at near full employment.
“The Trump win ushers in the US version of Brexit, with policies that support anti-globalization, protectionism, and greater restrictions on immigration,’’ said Mark Williams, a finance professor at Boston University.
He and others described a “good Trump, bad Trump” scenario, where the pro-growth stimulus policies could help the economy, but talk of trade wars and anti-immigrant policies could do considerable damage.
“That can easily offset all the good stuff,’’ Fidelity’s Timmer said.
In one example of the ripple effects to come, Munich’s Ifo Institute warned against overturning trade agreements: “If Trump goes ahead and erects trade barriers as planned, the damages will be huge,’’ Ifo president Clemens Fuest said in a statement.
He said the United States is German’s most important trade partner, responsible for 1.5 million jobs there.
The night of the election, Japan’s Nikkei index fell 5 percent. European stocks ended higher, erasing early losses.
Said Eaton Vance’s Gaffney, “The volatility is going to be high.”Beth Healy can be reached at firstname.lastname@example.org. Follow her on Twitter @HealyBeth.