It was Donald Trump’s press conference in the early hours of November 9 that some pinpoint as the moment fears about what his presidency would mean for stock markets turned into euphoria about his victory.
Campaign pledges to give a boost to the US economy were repeated, as the newly president-elect struck a moderate, even conciliatory, tone. Whatever you think of the reaction in financial markets since, there is no denying it has been seismic.
US small-cap stocks
These stocks, or those listed companies with a market value of $2bn or less, have had a striking month since the election. The Russell 2000, the index that is home to mainly domestic-focused companies, has surged 14 per cent. That compares with a 5 per cent advance in the index in the 11 months before Americans went to the polls.
Investors have poured money into small-caps partly on hopes that Mr Trump and a Republican-controlled Congress will deliver a stronger domestic economy. What has added to their sheen is the bet they will be shielded from the stronger dollar that has been a thorn in the side of large US multinationals and their reliance on foreign revenues over the past two years. The cut in the US corporate tax that Mr Trump has promised is also expected to help as smaller companies tend to pay a higher rate than larger entities.
The 16 per cent leap in Brent crude oil price is not something Mr Trump can claim credit for. If the US economy does strengthen that should, on balance, buoy demand for oil. However, crude owes its stellar month to the Opec agreement hatched in Vienna last week to cut oil output for the first time in eight years.
Whether the members of Opec, led by Saudi Arabia, deliver the cut is a critical question for the oil, equity and bond markets.
Shinzo Abe, Japan’s prime minister, was the first world leader Mr Trump met following his victory as he entertained him in Trump Tower in Manhattan. And Mr Abe will surely be happy about how the Japanese stock market has reacted. The benchmark Topix index has surged 10 per cent, with insurers and banks leading the way. The jump in Japanese bond yields, echoing the rise globally, has also boosted sentiment towards Japanese banks, with the Topix Banks index gaining 28 per cent, reducing its loss for the year to just over 5 per cent.
In the run-up to the election, gold was touted by Wall Street strategists as a good hedge in the event market turmoil would follow a victory by Mr Trump. Instead, the yellow metal has been shunned as interest rates shoot higher in anticipation of faster growth and the return of inflation. Gold has fallen 7.7 per cent — a sharp contrast to its 20 per cent advance in the 11 months before Americans went to the polls.
The rally in government bonds that dominated the first half of the year had already begun to lose momentum over July and August. Mr Trump’s victory over Mrs Clinton has intensified the trend, with US government bonds leading the move higher in yields as investors give credence to claims that the new administration will be able to deliver tax cuts and fiscal stimulus.
The yield on the 10-year bond — a benchmark for US corporate borrowing costs — surged from 1.85 per cent on polling day to just under 2.49 per cent in early December. The Bloomberg Global Developed Sovereign Bond index has lost 5 per cent over the past month. Yields move in the opposite direction to a bond’s price.
A resurgent greenback has been a striking feature of the month, with the dollar index — a broad measure of the currency — up just over 2 per cent. It’s the yen that has been one of the biggest decliners, which has also helped the performance of Japanese equities.