Donald Trump confounded the experts who all predicted that he would likely lose the presidential election and stormed into the presidency with an amazing win against all odds. Not surprisingly, markets shuddered at the thought of a President Trump and the uncertainty rattled markets.
With circuit breakers in place and a rolling downward movement for all global capital markets similar to what happened during Brexit, it's understandable for investors to stand back for a moment and ask what this means for their own portfolio strategy. Should I sell? Should I buy? What does this mean for the markets long-term? How will this impact the economy?
Let's be clear about something right up front; nothing has changed in terms of economic fundamentals based on the election of Donald Trump rather than Hillary Clinton. The relief rally that occurred earlier this week when pundits predicted that Hillary Clinton likely would be elected likewise in no way indicated any change in economic fundamentals. It's pretty simple, Clinton was the known factor, Trump is the unknown. Markets hate unknowns.
What causes markets to move up and now down is the prospect of uncertainty. It's fair to say that Donald Trump's election creates a tremendous amount of uncertainty. And as uncertainty ripples throughout the markets you will continue to see large swings and volatility just like we saw during Brexit.
And what played out over the last 24 hours is reminiscent of the Brexit surprise. So let's take a look at what happened during that cataclysmic event and how people reacted in a moment of panic. Perhaps you remember how frightened everyone was and how the market sold off almost 4 percent in response to concerns about what Britain's decision meant for the global economy. Then magically, markets rebounded. There was no real reason for the recovery from a data standpoint; it was simply just the evaporation of the initial shock. That's how panic works; strong reactions to certain events that cause huge market volatility.