If there’s one thing that seemed certain on a very uncertain election night, it was that investors would hit the panic button as soon as the world woke up to the news of President-elect Donald Trump. That’s what economists had been predicting for weeks, based on investors’ reactions to news events during the campaign. And it’s what seemed to be happening during the evening, as futures markets (which are open even when stock markets themselves are closed) tumbled further with each new hint of a Trump victory. At one point in the night, futures markets suggested the Dow Jones Industrial Average would start the day down 1,000 points, worse than the worst days of the 2008 financial crisis.
Yet when the bell rang on the New York Stock Exchange at 9:30 a.m. Wednesday, the initial reaction was comparative calm. The major stock indexes opened slightly higher, and then, unexpectedly, began to rise. By noon, the Dow was up more than 200 points. It ended the day up 257 points. The S&P 500 closed up 1.1 percent.
Divining why markets move the way they do is always a risky proposition. But most analysts today seemed to see the surprise rally as as sign of relief rather than excitement. Investors didn’t necessarily want Trump to win (although many probably liked some of his proposals, such as lower corporate taxes and reduced regulation), but even more than that they feared the chaos that could result from an uncertain or disputed outcome. Markets began to calm down when Clinton conceded and Trump gave a relatively conciliatory acceptance speech — in other words, once it became clear that even a shocking election result would nonetheless be followed by an orderly transfer of power.
A few weeks back, I warned that it was risky — even irresponsible — to confidently predict how markets would react to a Trump victory. But it is just as unwise to read too much into one day of trading. Investors were relieved that Trump’s win didn’t lead to widespread protests or worse; their mood could easily shift once Trump starts naming his Cabinet members or announcing specific policy proposals.
Even more uncertain is the effect that Trump’s victory will have on the economy as a whole. During the campaign, Trump promised to curb immigration and tear up trade deals — policies that various economic analyses have found could cause a recession. Trump has also promised to cut taxes by trillions of dollars, mostly for the rich, while preserving spending on Social Security, Medicare and the military — a position that, taken literally, would require huge cuts to other government programs.
But it’s too early to say how much of Trump’s agenda will be enacted. His positions on immigration, taxes and trade differ in important ways from those of House Speaker Paul Ryan, and although Democrats failed to retake control of the Senate, they held onto enough states to sustain a filibuster. Trump has also provided few details on many of his policy proposals, and on some issues, such as taxes and the minimum wage, has offered multiple, conflicting versions of his plans.
Not all of Trump’s proposals would necessarily be bad for the economy. He wants to boost infrastructure spending, a position that’s broadly supported by economists (although Trump hasn’t given many details). He wants to implement a new tax deduction for child care expenses and expand the Earned Income Tax Credit. Some elements of his tax plan, such as eliminating the estate tax and lowering the corporate income tax rate, hew to standard conservative orthodoxy, although he departs from it in other ways.
Many people over the past day have compared Trump’s win with the U.K.s surprise decision in June to leave the European Union. There are clear parallels. Markets tanked in the immediate aftermath of the “Brexit” vote but have since rebounded, and the vote itself doesn’t seem to have devastated the British economy (although the value of the pound has taken a beating). But just as Trump is not yet president, the U.K. has not yet left the EU. Only when it does will the full consequences of Brexit become clear.
The lesson from Wednesday, then, is not to take away any lessons too quickly. Trump’s mere election hasn’t caused a crisis in either markets or the economy. That doesn’t mean that his presidency won’t.