Markets' post-Trump exuberance won't last

After a bit of a wobble in Asia, the markets were commendably calm in their reaction to the election of Donald Trump, as I wrote the day after the election.

That calm has been replaced by cheer, even exuberance. The Dow Jones Industrial Average finished the day after the election 1.4 per cent higher, the broader based (and more reliable) S&P 500 was 1.1 per cent higher.

The FTSE 100 and European markets took their cue from that, and continued to chalk up gains this morning.

Am I missing something here?

It is true that there was no compelling reason to panic in the wake of the election result, as the markets rapidly realised once they had got over their initial surprise. Barak Obama is still the White House, and will be there until the New Year. People over there have taken their cue from him and are trying to behave like grown up for the first time in a while. Mr Trump’s surprisingly gracious victory speech calmed a lot of nerves.

But the looming issue of Mr Trump’s economic policy remains. The elephant is the symbol of his party; it is the elephant in the room.

There are those who argue that his foreign policy, inasmuch as it has been defined, could have advantages over that of Hilary Clinton, who would have been a more conventionally hawkish President, particularly with regard to Russia.

Economically it’s harder to see any plus side of a Trump presidency, even with the aid of the rose tinted spectacles that traders on the New York Stock Exchange donned.

A fiscal splurge of tax cuts, and infrastructure spending, a promise to “renegotiate” America’s debt, with lenders who he’ll need to get on side to fund that, a hugely expensively wall on America's southern border, which won't provide any of pay off that investing the money in, say, roads might, combined with the erection of metaphorical trade walls.

I’m not an economist but you don’t need to be an economist to see there’s going to be trouble if he keeps those promises and some of the others that he's made. That does, of course, assume the debt hawks in congress don’t combine with the Democrats to stop him. But if they don’t there’s going to be trouble and markets don’t like trouble.

For now, investors have basically decided to cross their fingers in the hope that Mr Trump’s fiery rhetoric doesn’t match reality, that his acceptance speech signals the shape of things to come now the cut and thrust of a divisive election campaign is done.

Maybe they’re right. And maybe the fairies at the bottom of your garden will come out to sprinkle magic moonbeams tonight. Regardless, would you want to be putting money into an already inflated stock exchange until we have a little more certainty on whether they are or not?

If enough investors are of that mind then the markets will start to slip, as the positive sentiment drains away.

For now traders and fund managers seem to have decided to quietly focus their attention on the tax cuts for higher earners that have been promised, and screw the rest of America.

That’s a very short term attitude. It’s the sort of stance that helped to create the divisions and insecurity that led to the election of Trump in the first place. There will be a price to pay for that and more besides, and the debt collector may be around sooner than you think.

The FTSE's gains quickly evaporated as protestors took to the streets. A stockmarket correction is coming. It's just a matter of how long it will take and how big it will be.

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