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It has been an eventful week filled with surprises after surprises. The week seemed to have started off well for Hillary Clinton, when Director James Comey of the FBI notified Congress that there will be no charges brought against Clinton for her alleged mishandling of official emails. This came after additional investigation by the FBI which started on 28 Oct 2016, and after reaching the same conclusion at the end of the first investigation back in early July this year. The announcement could not have come at a better time, with only two days before the US Presidential Election.
With the original investigation having taken over a year to complete, Director Comey seemed to have closed the second investigation into the matter in about a week, and has caused some controversy of its own. Some have criticised the actions of Director Comey, which could have potentially influenced the election outcome, being so close to election day. Some have even questioned whether the FBI caved under political pressure, threatening its image of independence.
Following Comey’s announcement, most of the world, including major media houses, polls, financial markets, expected a Clinton win, with the US stock market reacting and pushing the Dow Jones Industrial Average higher by 371 points (or 2.07%) on 7 Nov 2016, a day before the election.
The biggest surprise of all came when Donald Trump led ahead of Hillary Clinton in the later part of the election day on 8 Nov 2016, as Trump edged ever closer to the 270 seats needed. The Australian market reacted as live results were being updated online, which sent the market sharply lower towards the end of the session. The S&P/ASX 200 fell from an intra-day high of 5,314 points just after midday to an intra-day low of 5,052 points, losing 262 points or 4.9% in a couple of hours, before it recovered some losses in the last hour, but still lost 101 points for the day, or 1.9%.
With all the controversies and outlandish comments and scandals throughout the Trump campaign, the market had dreaded an imminent Trump victory. Before the US market was even opened, the panic in the market sent the Dow Futures over 800 points lower, triggering the 5% circuit breaker which halted trading on the futures market!
The surprises don’t finish there, when the US stock market subsequently opened on the morning of 9 Nov 2016, the market sentiment had somehow changed, with investors shifting focus on Trump’s election promises of increasing spending on infrastructure and lowering and simplifying of taxes, sending the Dow to near record highs. The Dow finished 256 points higher, or 1.4%. The ‘Trump rally’ continued for the rest of the week, achieving a total weekly gain of 5.4% for the week ended 11 Nov 2016. A similar rally occurred in the Australian markets, with Australian major banks leading the way. The S&P/ASX 200 finished 3.7% higher for the week ended 11 Nov 2016.
Personally, I thought all this uncertainty would have sent the global markets significantly lower, especially after the Trump victory. Markets usually perform poorly when actual events are not aligned with market expectations. I was hoping to take advantage of the market situation to increase my share holdings at beaten down prices. However, the opportunity never really eventuated. Having said that, it’s not all bad. Since two-thirds of my portfolio is made up of Australian major banks, the recent rally has also pushed my portfolio higher.
The markets are now becoming very difficult to predict. I personally do not think the ‘Trump rally’ will last. With the US stock market at a historic high (Yes, the Dow closed at 18,868.69 points on Monday 14 Nov 2016, highest ever in its history!), it is time for me to sit on the fence again and look out for the next opportunity.
INVESTCOST 