Global financial markets plunged as Donald Trump appeared headed toward victory in the U.S. presidential election.
Futures on the Standard & Poor’s 500 and FTSE 100 tumbled about 5 percent, the MSCI Asia Pacific Index fell 2.9 percent and the Mexican peso – a key indicator of investor sentiment during this race – plummeted 12 percent, reaching a record low. The unexpected result panicked investors, who rushed into haven assets like gold and U.S. Treasuries. The odds of a Federal Reserve rate hike in December – considered an almost sure thing before the election – fell below 50 percent.
While investors around the world digest the election’s results, a central issue for them is how the outcome will affect their assets. But does how markets react tell us anything about the future as well?
As it turns out, whether markets – specifically stocks – continue to fall or begin to rise over the next few days can be a useful predictor for how they will perform in the months and even years to come. In the case of the 2016 presidential election, investors will decide whether they think Trump will be good or bad for the economy – and more importantly their investments – as the 44th president.
The rest of us, investor or not, would be well-advised to pay attention.
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