TRADING THE WEEK: Markets Endure Trump, Embrace New Future

Equity trading endured the one-two punch of the election of a new U.S. President and the resultant volatility that his policies and presence brought.

The equity markets continued to trade off of volatility as Donald Trump was elected as the 45^th President of the Unites States – a surprise to many traders who bet Hillary Clinton was to be the leader of the free world. As the election drew and on Election Day, volatility spiked and drove activity. First, the markets moved lower with futures showing a drop as much as 400 points ahead of the outcome but then reversed course as the official result was proclaimed. Last Wednesday saw a relief rally as traders and investors embraced Trump and his policy rhetoric.

“We have rallied back nicely from last Tuesday night’s immediate selloff due to the election,” began William Mingoine, Managing Director and Head of Equities at Drexel Hamilton. “It seems to be a very sector specific rotation.  Seeing a spike in healthcare & industrials given Trumps bullish ideas on building the country’s infrastructure and shovel ready projects.”

Also, Mingione added  that with the possibility of a repeal of Obamacare, REITS are seeing some weakness.

“It was some kind of whipsaw trade last week,” said a floor trader. “The market got some volatility and trading picked up – both to the downside and upside – but things have settled down. Next up, aside from the upcoming month of economic data is the FOMC meeting in December.”

The trader added many on the desk were eager to begin a return to normalcy of sorts – awaiting the outcome of the December 14 Federal Open Market Committee meeting. Market consensus holds that the FOMC will raise short-term interest rates by at least 25 basis points.

Drexel Hamilton’s Mingoine said he’d heard similar thoughts among his clients.

“A slow rise in rates will help add to disposable income especially in our senior community that tend to rely on a fixed income,” he said.  “Many of the tech names have seem weakness on the rhetoric coming out of Trump campaign about U.S. companies doing business abroad.  The market seems to have turned to a very equity friendly environment at the expense of bonds.”

Trading on U.S. equity exchanges leapt to an average 9.24 billion shares per day for the week ended November 11, according to Bats Global Markets data. That’s compared to an average of 7.62 billion shares in the week ending November 4.

In other market news, President-elect Trump’s transition team has set up a website that outlines the plan to either abolish or modify certain financial regulations, most notably the Dodd-Frank Act. “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation,” the website said.

Also, all three groups of securities included in the Securities and Exchange Commission’s Tick Pilot are now actively trading. Now that the phase-in procedure for securities has ended, traders and the brokers can begin to most effectively parse the trading data and gauge execution of the small cap stocks in the three groups. According to one trader, it could be a few months before any meaningful conclusions can be drawn as to the Pilot’s effectiveness, but a handful of firms are already getting preliminary research notes ready providing a first take.

“I think you need six months of meaningful data before one can draw any significant conclusions as to the Pilot’s effectiveness,” said a trader in Chicago. “But given the smooth roll-out and lack of issues in Pilot stocks, early reads could be a good harbinger of things to come.”

This Week’s U.S. Economic Indicators of Interest:

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