Global Markets Are Shaken, Then Stabilize, After Trump Victory

    After a sharp sell-off overnight in Asia, markets staged a recovery on Wednesday as investors shook off the shock of a Donald J. Trump presidency and began to focus on whether his mix of policies could spur a still-fragile global economic recovery.

    Futures for the Standard Poor’s 500-stock index initially plunged 5 percent but recouped nearly all their losses when stocks started trading in the United States.

    By their nature, markets are wired to look beyond the moment and into the future. In that regard, the bounce-back in stocks reflects the bet being made by many investors that Mr. Trump’s promises to increase government spending, cut taxes and ease financial regulations will outweigh his strident anti-trade rhetoric.

    To that end, stocks that would benefit from more robust economic growth, like banks and companies tied to infrastructure and transportation, were in demand on Monday. By midafternoon, shares of Bank of America were up 5.5 percent, while those of the equipment rental company United Rentals were up 14 percent.

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    More broadly, however, market experts said that Mr. Trump’s victory should be viewed as a loud signal from Main Street that the time had come for fiscal policy in the form of increased government spending to replace central bank activism as a means to stimulate economic growth.

    “This was a political uprising,” said Jurrien Timmer, a market strategist at the mutual fund giant Fidelity Investments in Boston. “Monetary policy has been part of the problem, in that the wealth effect has not accrued equally. If the baton is passed toward fiscal policy, that would mean higher inflation and lead to a rotation toward cyclical stocks such as financials.”

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    How the Markets Are Reacting to Trump’s Stunning Upset

    As Donald J. Trump began to solidify his path to the presidency on Tuesday night, markets around the world fell sharply, but have been on the rise on Wednesday.


    For quite some time now, economists have been warning that the reliance of governments in the United States and elsewhere on central banks to energize economies via zero interest-rate policies and buying back securities was creating an uneven recovery by bolstering the housing markets in New York, London and San Francisco while real economies lagged.

    “The economic recovery under President Obama never reached deep enough — it did not bring working-class people up,” said Justin Gest, a public policy expert who has just written a book analyzing how working-class men and women in the United States and Britain have become alienated. “And the nature of the economy that Wall Street and corporate America has promoted reflects the gaping inequality in this country.”

    Increased government spending on highways, bridges and roads may well provide a lift to the broader economy, and tax cuts and looser regulations will be cheered by the financial markets.

    But there are downsides to these approaches, including increased deficits and levels of debt.

    Moreover, market analysts wonder how Mr. Trump will balance these policies, which are mostly positive for financial markets, with his promises to increase trade barriers on exports from Mexico and China.

    Mr. Trump’s strident anti-trade rhetoric has prompted fears that he would precipitate a trade war at a time when global trade is already suffering because of increased protectionist measures in countries around the world.

    “This is not ‘Brexit,’” said Jeffrey Kleintop, an investment specialist at Schwab Investments, referring to the rally in stocks and bonds that soon followed Britain’s vote to leave the European Union. “That will be a long process of negotiated change. The worry is that Mr. Trump would follow through on his promise to raise tariffs on China and Mexico.”

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    Traders on the floor of the New York Stock exchange on Wednesday. Taken as a whole, markets absorbed the looming Trump presidency as a signal that the knowns are now vastly outnumbered by the unknowns.

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    Spencer Platt/Getty Images

    In afternoon trading on Wednesday, the benchmark S.P. 500 index was up about 1 percent.

    For now, the market’s willingness to cast a positive eye on a Trump win seems tied to the prospect of more government spending.

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    In the weeks leading up to the election, a noticeable trend has been the slow but persistent increase in the interest rates of government bonds, many of which have been in negative territory for some time as investors sought safety in these securities.

    The yield on the benchmark 10-year United States Treasury breached 2 percent on Monday, a strong rise since rates bottomed out at 1.37 percent in July.

    And similar bonds issued by Japan and Germany, which this year began offering negative yields, are creeping toward positive territory.

    Analysts have said that these moves reflect a growing willingness of politicians around the world to loosen their fiscal belts as a way to fight against long-term stagnation. Any move toward a meaningful pickup in infrastructure investing would require more government borrowing and thus put upward pressure on today’s rock-bottom interest rates.

    Last week, the former United States Treasury secretary Lawrence H. Summers made the case, in a speech at the International Monetary Fund, that with rates at historically low levels and with the increasing chances of the economy entering a recession in the coming years, a move toward more government spending is desperately needed.

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    “The question of lack of demand should be our preoccupation in thinking about macroeconomic policy going forward,” Mr. Summers said. “And it has a natural solution — issuing debt to support whatever investments the government sees as best.”

    Governments around the world that are sitting on large piles of cash, like Germany, are facing similar pressures to take advantage of low rates to borrow and spend to stimulate a more vigorous level of growth.

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    While such policies would also increase debt levels, economists who support Mr. Summers’s policy prescription argue that a trade-off of higher growth is worthwhile, given how low borrowing costs are right now.

    No matter what comes next, the initial reaction Tuesday into Wednesday was shock. As the realization worked its way around the planet that Mr. Trump would become the next president of the United States, global investors tried to make sense of the financial and economic implications, putting markets on edge.

    American stocks were higher, a respite from the wild ride in Europe and Asia. But confusion showed no signs of abating, with investors awaiting the articulation of Mr. Trump’s agenda.

    Global investors initially reacted as if the world had caught fire. They yanked their money from the marketplace in an unrestrained bout of selling reminiscent of the outbreak of war.

    Investors sold stocks — first in Asia, and then in Europe. They sold oil and the Mexican peso, pushing it to a record low.

    They even sold the United States dollar, which nearly always functions as a refuge in times of chaos. Yet hours later, the dollar rallied, oil prices recovered and even the Mexican peso came off its lows.

    Election Night Live Coverage

    Times reporters provided real-time analysis of Donald J. Trump’s stunning upset in the presidential election on Tuesday.


    Reporting was contributed by Neil Gough, Peter S. Goodman and Chad Bray.


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