Have Financial Markets Come to Terms with Donald Trump?

Before the U.S. presidential elections, Wall Street and its spokespeople did not hide their pessimism towards Donald Trump and were awaiting the victory of Hillary Clinton, who, in their view, symbolized stability and continuity of the status quo. Contrary to expectations, the Republican candidate prevailed over his Democratic rival, and financial markets in the United States and many other parts of the world faced aftershocks as soon as this event became certain: stock indices fell, the dollar's exchange rate decreased, and investors turned to safe-haven assets, especially gold. However, the shock from this surprise did not last long, and global financial markets, following the positive fluctuations of Wall Street and a new peak recorded for the Dow Jones index, ended the last two days of the past weekend in favorable conditions. What factors calmed financial markets in the U.S. and other parts of the world following the tremors caused by the November 8 elections, and will this calm continue? Have economic circles inside and outside the U.S. become assured that the political transformation in the world's most important power will not have negative economic consequences and may even inject new dynamism into the veins of the global economy? In response to these questions, two opposing views, optimistic and pessimistic, come to light. Optimistic View: In justifying the sense of calm that emerged in the financial markets of the U.S. and the world after a short-term shock, optimists mainly emphasize the following factors: 1) The most important factor creating anxiety in financial markets is doubt and confusion. There was a possibility that the result of the U.S. elections, due to the slight gap between the votes of the two camps, would lead to prolonged political conflicts in the country. Although financial markets had bet on Hillary Clinton's victory, Trump's clear and undeniable advance at least had the advantage of leaving no room for doubt and protest. The painless end of a controversial electoral period, unprecedented in contemporary U.S. history, coinciding with the political alignment of the White House and Congress, is seen by optimists as one of the most important factors in restoring calm to financial markets. 2) The clear change in Trump’s rhetoric and behavior immediately after his victory announcement has assured financial markets that the elected President of the U.S. has the necessary flexibility to manage the country's affairs and that his 'radicalism' has ended with the elections. 3) The emergence of more prominent Republican figures around the victorious man of the November 8 elections has created confidence that Trump's unilateral actions during the election contests are over, and the political arena of the U.S. will gradually regain its traditional shape. Financial markets have concluded that Trump, after moving away from the political and economic platform of the Republican Party, must rely on the structures of that same party to govern the world's largest power and forget many of his alarming electoral slogans. 4) The massive infrastructure investment plan worth one trillion dollars over the next 10 years, promised by Trump, has generated hopes in several economic sectors benefiting from this plan and has raised their stock values in the market. 5) Despite Trump's severe criticisms of Barack Obama's record, the economic situation in the U.S. is acceptable compared to many other industrial powers. Unemployment is at a low level (although Trump assesses the actual unemployment figure at a much higher level than officially announced), the trade balance deficit is decreasing, household consumption is on the rise, and indicators in both the services and industrial sectors are in good condition. In other words, the elected President of the U.S. inherits a relatively organized economy and has a suitable maneuvering range to achieve higher growth rates and more job opportunities, which is his main goal. Pessimistic View: Pessimists assess the return of enthusiasm to financial markets as fragile and short-lived, relying on the following factors: 1) Confusion about Trump's economic and political orientations will continue at least until the appointment of his key close collaborators. Only after January 20, the day the elected President takes office in the White House, can clear results be reached regarding how he will formulate policies and exercise power. Until that day, financial markets will fluctuate based on contradictory speculations. 2) The economic plans of the elected President are very ambiguous and raise questions for which acceptable answers have not yet been found. Alongside the one trillion dollar infrastructure investment plan, Trump promises to reduce income taxes and corporate profits. In this situation, the prospect of increasing the budget deficit and government debt threatens macroeconomic balances. The possibility of escalating tensions between the White House and the U.S. Federal Reserve is also not out of the question. 3) Trump's very negative view of international economic organizations (especially the World Trade Organization) and several regional treaties will certainly be reflected in the future policymaking of the White House, according to pessimists. The elected President has problems with multilateral diplomacy, which relies on international organizations, and he will also choose future collaborators from among those who agree with his views. Advancing this policy in the coming years will create severe shocks in U.S. foreign relations, which cannot fail to impact financial market dynamics. 4) The policy of creating tariff and non-tariff barriers at the U.S. borders had such a place in Trump's electoral platform that abandoning it, from the pessimists' perspective, will be impossible. The liberalization of trade in the world, which has been staunchly supported by the U.S. since the end of World War II, will now be called into question. Other industrial countries and emerging powers will also turn to closed-border policies, an event that could expose the global economy to a long period of turmoil and negatively impact the U.S. economy as well. Given the confrontation between the pessimistic and optimistic views regarding financial market developments in response to the policies of the future occupant of the White House, we see that even after the end of the U.S. presidential elections, many questions still lack clear answers.