Don’t tell me Trump’s move into the White House is Brexit x 1000. While the two events appear identical, the similarities are superficial. The market’s reaction on Wednesday was anything but surprising. As the polls’ predictions revealed themselves to have been plucked from thin air, yet again, the markets tumbled. Just as with the referendum’s outcome in June for those hoping for a Clinton win, the fall in the markets looked like confirmation that the End of the World was upon us. As in June, the overwhelming reaction on social media and from major news outlets reflected a doomsday scenario with markets in free-fall and the end of common human decency. But just like June, the same sun that had risen on an impressively pessimistic markets set on stock exchanges on a rally. But the two market bounce-backs aren’t remotely related to each other.
Equity markets like certainty. They also like being bailed out. They particularly welcome the certainty of being bailed out. They are like spoilt children. They have tantrums when feeding times change or are told off when they break something. Just as children are a poor indicator for the structural integrity of the house they’re brought up in, equity markets are a pretty poor thermometer for checking on the health of an economy. Especially if the economy you’re looking at belongs to America. “Free market” hasn’t been a term that you can apply to the US stock exchange with a straight face for a good long while. Nanny has been making sure dinner’s on time with pudding served first and that horrific macaroni tableau is front and centre on the fridge. It has not been governing itself. Just as the EU central bank continues to prop up Europe’s largest banks, the FED continues to bolster banks that are too big to fail, with Wells Fargo looking like it’s the next one to go, or rather, not to.
In the US the sell-off as the election results rolled in reconfirmed us that yes, equity markets do indeed like certainty. The polls were wrong so the market fell. But the record breaking finish of the DOW Jones showed us that the markets remembered something cheering about Trump: the few economic policies of Trump we are aware of threaten to send the US budget deficit sky-high. And who’ll pick up the tab? Why, the Fed, of course, after Trump repeals the Dodd Frank Reform act that protects the American taxpayer from footing the bill of bail-outs. Someone crack out the Cristal and pile on the risky assets. Welcome back, 2009, Wall Street has missed you.
In the UK the story is different. The FTSE’s return to an inflated high reflected the fact that Brexit has yet to happen. Investors took advantage of seemingly cheap stocks and will hold them until a concrete date for Article 50 is set. The markets in the UK are reflecting what is happening in the real world, just. The lower value of the pound helped push the FTSE higher still as UK firms became competitive with oversea businesses and managed to get some extra orders in.
The UK markets will continue to reflect the economic conditions in which UK firms operate, unless the Bank of England is once again seduced by a quick fix of QE. Meanwhile the US financial system is only going to continue to do exactly what Trump promised his administration would fight, namely keep the rich wealthy and the poor stuck in the mid-west.
The sad note to this awful tale is that the same thing would undoubtedly have happened with Hillary, as this issue is systemic and would not have been affected by a change of regime. But maybe it’s better the impending financial collapse comes from someone perceived as a racist, sexist pig and not a woman who became a beacon of hope for many.