The Trump Rally

December 16, 2016

The night of Trump’s election, equity-index futures fell five percent to limit down, the farthest they’re allowed the fall in a day. Listening to election results come in on the news, anchors said it was a larger point loss than 9/11. Financial nimcompoops who had probably never heard of futures contracts before parroted that meaningless fact on social media like it meant something, that “Trump’s being elected is worse than 9/11!”

Yup, the Dow briefly fell over 800 points in overnight trading once it became obvious Trump was going to win and that there would be a Republican sweep, something either pollsters or the media got wrong, which was more than the 600-some it fell when a center of global American capitalism was destroyed on 9/11, to completely ignore the countless lives irreparably altered on that day and in the years to follow.

But the Dow was twice the size on election night than it was on 9/11. Those 600-some points lost on 9/11 were over nine percent of the index, a much greater drop. And a closing drop of 600-some points is much more substantial than some extreme overnight volatility.

Further, if you’re long into an event and a surprise occurs, and you’re unsure where things will stand come morning due to the volatility, hedging short in the overnight market is exactly what you do.

But now since the election, close to close — that is, excluding overnight moves — the Dow has risen eight percent. The media’s been calling it the Trump rally for the last month straight.

They’re calling it that, yet just before the election the story was “markets surge on news Hillary Clinton has been cleared by the FBI.”

It’s almost like they’re making it up as they go along, weaving a temporary narritive with spurious correlations.

I personally couldn’t find a good catalyst for today’s quarter percent down close, so the Dow must have fallen due to the boysenberry syrup I had on my french toast this morning.

Here’s what actually happened when Trump won: Stocks continued their course no longer inhibited by the event risk that dragged on them in October. But I guess that’s boring.

There’s a somewhat interesting story to be found, but not in stocks. While the move in treasuries was likewise simply the minor trend that developed over the Summer solidifying itself as a more meaningful intermediate trend, I believe the strength of the move since the election may highlight concern over inflation from longer-term participants.

The last two years of DIA.
November 9, 2016 — vertical dotted line — the day the Dow–Jones Industrial Average kept moving in the same direction it had been since February.
The last two years of US treasury prices.
November 9, 2016 — vertical dotted line — the day selling markedly increased in treasuries due to, I believe, concerns of potential inflation under a Republican-controlled government. Why would you hold government paper yielding 1.5% if you thought inflation could well reach, say, 3%?