US election: the shares that went bump in the night

Traders are calling it the ‘Trump bump’: a stunning, 6.8 per cent intra-day bounce in the S&P 500 index futures market.

It will be remembered as one of the most eye-watering sharemarket recoveries in history.

Traders are calling it the “Trump bump”: a stunning, 6.8 per cent intra-day bounce in Wall Street’s flagship S&P 500 index ­futures market that sparked a scramble back into riskier assets and out of havens that had been bid up by the spectre of a Trump victory.

Australian shares yesterday added $50 billion in a single-day surge that saw the S&P/ASX 200 index jump 3.3 per cent.

“Trump’s speech was not the usual Donald rant but gracious and very conciliatory,” said Bell Potter director Richard Copple­son. “It made him come across as a good bloke and that sparked an extraordinary turnaround. “We all saw the déjà vu from Brexit — markets got something they were not expecting, panic set in, everything was smashed, and then once everything calmed down as ­peopled sensed the event was not going to change the world, overnight markets headed back up.”

The surge came amid warnings of higher interest rates globally. The president-elect’s pledge of a spending binge will send prices higher, and economists said the US Federal Reserve was likely to respond by raising rates more ­aggressively in the medium term, and higher US rates would drive up borrowing costs elsewhere.

Jonathan Platt, head of fixed income at Royal London Asset Management, said: “The main ­implications of this election are likely to be higher inflation as a result of fiscal policies such as tax cuts and infrastructure spending. In the medium term, this will raise US and global interest rates.”

In Australia, after diving up to 4.9 per cent on election day, the S&P/ASX 200 index surged to 5328.8 points yesterday, its biggest one-day rise in five years.

Resources stocks went through the roof. The iron ore price jumped 4 per cent and BHP Billiton surged almost 10 per cent to a 12-month high of $24.78. Banks and market-related stocks also soared, with Macquarie Group up 8.3 per cent to $80.28 a share after diving more than 7 per cent.

However, stocks that benefited from record low interest rates lost ground as government bond yields surged on the prospect of inflation. Investors sold off property, utilities and infrastructure stocks as Australian government 10-year bond yields jumped 28 basis points to 2.5 per cent.

The Trump bump was turbo­charged by a build-up of cash. At its nadir this week, the S&P/ASX 200 had fallen up to 10 per cent from a significant high three months ago, marking what professionals call “correction”.

“The institutions worldwide are massively overweight in cash,” Mr Coppleson said. “Some had the biggest cash balances in a long time and all were ready for the sell-off, but everyone was wrong — it was only a six-hour event.”

The Republicans’ clean sweep to control both houses of congress also helped avert a sustained sharemarket fall. “For the first time in 12 years, a US president will have control of both (houses), and thus he can actually get things done,” Mr Coppleson said.

“He will be able to bring in his tax cuts and many of the stimulatory policies that will give US GDP a big boost.”

He expected cash to keep flowing back to equities until early January.

Additional reporting: The Times