What a week it’s been.

Trump triumphed.

So far, the Trump rally has been straight from the ‘Brexit playbook’, with the initial market shock as the polls came in being quickly replaced with a rally of greater proportions.

The Dow Jones has posted fresh all-time highs; the German DAX touched 10800 for only the third time this year; whilst the UK Index reached 7000 on Thursday after a month long downtrend.

As election risk was taken off the table markets reacted overwhelmingly positively. Gone was the negative outlook of a Trump Presidency (centred on uncertain trade as a result of potential protectionism) and was instead replaced with market optimism, in particular regarding Trump’s plans to increase fiscal stimulus through a wide-ranging infrastructure spending programme, tax cuts and deregulation.

But in my opinion, the Trump train will be a short-lived phenomenon and markets will soon post a correction once the rally of the last three days runs out of steam.

First, ‘the Donald’ has not even taken office yet. Americans have chosen him as their next President, resulting in a rally, however are yet to actually see what his time in office will warrant. Sure, he hasn’t mentioned that wall yet, but despite many thinking he’ll retract most of his controversial policies there is a chance that he may stick to some of his guns in order to keep his voter base happy. Sectors involving infrastructure, notably Construction and Mining, as well as rising commodity prices, may pare the gains made over the course of this week, whilst the Financial sector, already incredibly confident that Trump’s plan to deregulate the industry will succeed, may well see their hopes dashed once he enters the Oval Office.

Second, Trump has a wealth of business experience, but no political experience of economics. Granted, fiscal stimulus in the US may desperately be needed, but the real ramifications of this are a much larger US deficit, damaging growth in the long term. Equities may be hit as a result of declining growth prospects. What might happen if he were to follow through on his promise to default on US debt repayments?

Last but not least, historically the initial stock market reaction to a presidential election is not replicated over the longer period of the President’s term. A negative reaction from the S&P 500 on the announcement of the results is, in general, replaced by a positive performance on the index over the course of the next four years and vice versa. Could this mean that ‘the Donald’s rally might soon turn back on itself?

It is worth noting that the Trump presidency may not follow this course.  His path to the Presidency has already been both surprising and unconventional.  However, the annals of history always provide some basis for the future, whether it be good or bad.

In my opinion, however, now might be the time to take a careful look at your positions and decide for yourself what the newest leader of the Free World may mean for stock markets.

Will I be proved correct? By signing up to our research at Accendo, you can stay up to date with the very latest movements of financial markets as the Donald becomes the 45th President of the United States.

James Abbott, Senior Trader, 11 November