Market update - US election

Markets stabilised this afternoon as selling pressure following Donald Trump’s surprise election win in the US gave way to a big rotation from defensive to cyclical stocks.

Gold miners, cyclical US construction stocks and health care companies are in favour as US markets open. Traditional defensive sectors including consumer stocks, energy and utilities are under pressure.

After nervy trading early on, market moves since the sell-off this morning imply a fairly bullish assessment of global economic prospects after Trump’s victory. US stocks flirted with gains as markets opened in New York despite futures markets earlier indicating heavy falls.

Big moves in US-focused construction and infrastructure stocks in London are one indicator that investors appear to be positioning for a more ‘risk-on’ environment in financial assets. Heavy equipment hire specialist Ashtead (AHT) gained more than 10% and steel galvanising business Hill & Smith(HILS) traded 6% higher. Both have significant operations in the US.

Comments in Trump’s victory speech flagging increased infrastructure spending appear to back up this view.

‘We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,’ said Trump.

‘We’re going to rebuild our infrastructure which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.’

A rally in gold stocks might also be an indicator of higher-than-expected growth and inflation following Trump’s election to the White House, rather than a classic fear trade. Mexican gold miner Fresnillo is the biggest gainer in London today, up almost 10%.

Other big moves in gold mining include Egypt-focused Centamin and Randgold Resources, which has most of its assets in Africa. Each is up more than 7%.

President Elect Trump said the US economy would grow twice as fast as it is currently under his leadership.

If achieved, that scenario would put upward pressure on inflation and interest rates.

Expectations of a December interest rate increase by the Federal Reserve are now 80%, after falling to around 50% immediately after the result.

Elsewhere, utilities are among the defensive sectors losing ground as investors appear to rotate from safe investments to riskier ones.

SSE is the biggest utilities loser on the FTSE 100 today, around 2% lower, while the much larger National Grid is also weighing on the blue chip benchmark, down 0.8%.

Health care is one defensive sector bucking the bearish trend. Stocks including speciality drug supplier Shire (SHP), GlaxoSmithKline (GSK) and Astrazeneca (AZN) are all up more than 2% – mainly because Hillary Clinton lost, rather than because Trump won, as Clinton had taken a more aggressive stance on reducing drug prices in the US compared to Trump.

As well as potentially higher growth and inflation, markets could also be pricing in trade tariffs and greater protectionism, as tariffs and protectionism are inherently inflationary.

Rolling back the disinflation prompted by two decades of global supply chain management would spook bond markets and potentially mean central banks have to take interest rates higher more quickly than expected.

The Fed may therefore pause in December but could find itself playing catch-up, if Trump does impose tariffs on imports from Asia, Latin America and Europe – a prospect which is likely to weight on emerging market stocks particularly heavily today.

These articles are for information purposes only and are not a personal recommendation or advice.