Some pundits are describing Donald Trump’s surprise victory in the presidential election as a so-called black swan. That is to say an event—as Nassim Taleb who coined the phrase, defines it—that is seen as highly improbable, positive or negative, yet causes massive consequences.
So far, Trump fits the bill.
The billionaire real-estate developer has rocked markets around the globe. Few believed he had a chance of emerging from a crowded Republican field to beat Democratic rival Hillary Clinton in a head-to-head race for the Oval Office.
Now, many investors who positioned themselves poorly are paying a steep price. The Dow Jones Industrial Average
vaulted to record levels, closing at its third straight all-time high on Monday, and the S&P 500 index
on Tuesday was stretching toward its own record levels, with the broad market benchmark’s record of 2,190.15 of Aug. 15 firmly in view.
As MarketWatch has reported in the past, investors had not planned for a Trump presidency, and many had predicted that a win by the outspoken mogul would result in a bloodbath for investors. Most stocks rallied. Financials
ripped higher on hopes of rising interest rates, and trades that had lured yield-seeking investors got pummeled.
Read: What President-elect Trump means for every U.S. industry
The bloodbath, however, was in the bond market, where investors saw at least $1 trillion in value around the globe wiped out, according to Bloomberg, as investors rapidly sold U.S. government paper on the expectation that Trump’s proposals for boosting growth would mean larger deficits and a jolt to growth and inflation, quashing appetite for bonds, like the U.S. 10-year Treasury
with bond prices moving inversely to yields.
What follows next in the market is anyone’s guess. The full depth of Trump’s policy picture has yet to come into view. It is expected that he will be less strident on regulation, which has helped deliver a fillip to those aforementioned bank shares. But the implications of his protectionist policies, and tough talk on trade, should they be implemented, are sill unclear.
Emerging-market currencies and exchange-traded funds have taken a beating in the wake of Trump’s election. The iShares MSCI Emerging Markets ETF
is off 6.2% so far this month. By comparison, the Dow and the S&P 500 are up at least 1.8% in November. The U.S. dollar
which has strengthened broadly against the backdrop of Trump, has gained 7.7% against Mexico’s peso
so far this month.
That impact on markets led the financial blog the Whomp to refer to Trump as an “orange swan,” in reference to his perpetual tan. Other analysts also have cheekily made that reference.
What kind of president Trump will be remains a huge question.
But Taleb, at least, isn’t scared. Back on Nov. 3, Taleb told CNBC that a Trump presidency wasn’t just likely but that investors shouldn’t worry about it.
“In the end, Trump is a real-estate salesman,” Taleb said. “When you elect real-estate salespeople to the presidency, they’re going to try deliver something.”
Check out the full interview, with the originator of the black swan talking about the orange swan:
View more information: https://www.marketwatch.com/story/trump-is-the-black-er-orange-swan-wall-street-was-bracing-for-2016-11-15