markets have a tendency toward hyperbole, and as donald trump headed toward a win they bet on the four horsemen of the trumpocalypse riding over mexico. the peso fell more than 10% to its lowest ever against the dollar, as traders focused on the clearest trump trade. by the time markets opened on wednesday mr. trump was confirmed as president-elect and the market had switched from worrying about the bad stuff he promised to the possible good side. the overnight flight to safety took s&p 500 futures to their 5% maximum drop at 1 a.m. eastern time, but the market was up 0.7% by 2 p.m. the dollar made back its loss against the haven yen and against sterling and the euro, while gold went from up $62 at a peak of $1,337 an ounce to up just $8 at $1,282. the balance between good and bad trump<u+2014>from a markets point of view<u+2014>is most obvious in the bond market. after an initial sharp drop in yields (and rise in prices) as investors sought out the safety of treasurys, the 30-year yield rose from a low of 2.52% to a high of 2.81%, the highest since january. this was the biggest daily rise since the taper tantrum in the summer of 2013 as the u.s. federal reserve prepared to retreat from buying bonds. the 10-year yield broke above 2%, reaching the highest since january. the early bet was that <u+201c>bad<u+201d> trump would prevail. the assaults he repeatedly promised on global trade and mexican immigrants, the worry about diplomacy and the rule of law would hurt the economy, hurt profits and justify a search for safety. investors then switched to a bet on the market-positive promises of the <u+201c>good<u+201d> trump: deficit-funded income tax cuts and infrastructure spending, corporate tax cuts and an attack on red tape. mr. trump<u+2019>s presidential acceptance speech encouraged this view as he praised rival hillary clinton <u+2014>having previously led chants of <u+201c>lock her up<u+201d> at his rallies<u+2014>and failed to mention building a wall on the mexican border. maybe his choice of the rolling stones<u+2019> <u+201c>you can<u+2019>t always get what you want<u+201d> was aimed at his core anti-immigrant, antitrade supporters. markets are about speculation, and this is speculation at its most extreme. we should expect a lot of switchbacks over the next two months as mr. trump<u+2019>s comments between now and his january 20 inauguration are examined by investors for hints of <u+201c>good<u+201d> or <u+201c>bad<u+201d> policies. even if we knew more about mr. trump<u+2019>s plans, the immediate moves don<u+2019>t tell us much about how investors will fare under a president trump. market moves between election day and inauguration have had no obvious link to performance during presidential terms in the past, as data compiled by birinyi associates shows. indeed, markets fell sharply after the elections of two of the presidents who oversaw the biggest bull markets once they were elected, franklin roosevelt and barack obama. the records of the two presidents suggest there is hope for the markets under mr. trump. one interpretation of the market<u+2019>s performance under the two democrats is that markets like massive government stimulus programs<u+2014>and mr. trump has promised <u+201c>yuge<u+201d> infrastructure spending. the s&p 500 was up 141% under roosevelt in his three-plus terms, and 152% under mr. obama, up to tuesday<u+2019>s close. another interpretation is that presidents really don<u+2019>t matter as much as those inside the beltway like to think. markets move in cycles, and the presidents who oversaw the biggest bull runs had the good fortune to be elected in the middle of really bad recessions. roosevelt<u+2019>s devaluation, bank fixes and stimulus surely helped fix the great depression, but it didn<u+2019>t hurt to take office after stocks had already fallen 80% from their 1929 peak. similarly, mr. obama took office in january 2009 just before the market hit the crisis low two months later. the market performed worst (since 1928) under two republicans, herbert hoover and george w. bush. both had the misfortune to take office when stocks were frothy, although hoover<u+2019>s policies certainly didn<u+2019>t help. on this basis mr. trump<u+2019>s timing looks bad. he himself thinks share prices are in a bubble, and said this summer he<u+2019>d sold out of stocks. the market<u+2019>s been rising for more than seven years with only the briefest of interruptions, and it is highly valued, with its price-to-forward-earnings ratio of 16.6 times close to the highest in a decade. when mr. obama took office, shares were at just 11.8 times forward earnings. in the short run what matters to markets is the balance between good trump and bad trump. for the longer run, high valuations and still-high profit margins mean stocks are likely to deliver pretty low returns, even if mr. trump<u+2019>s message on his immigration and trade policies turns out to be <u+201c>just kidding folks!<u+201d> write to james mackintosh at james.mackintosh@wsj.com
<u+2018>good<u+2019> trump trumps <u+2018>bad<u+2019> for markets... for now - wsj
james mackintosh