Market Behavior in Times of Uncertainty

Current markets are far from stable; rather, they are marked by uncertainty. The outcome of the U.S. elections on November 5 was perceived as a choice between two radically different alternatives, almost like a clash of civilizations. This moment was also seen as a critical point for the markets, which faced a dilemma: to continue with the status quo or embrace significant change.

However, the market reaction so far has been relatively limited. Comparing the situation to the night of November 5, when the election results were still unknown, the yield on the 10-year U.S. Treasury bond has hardly changed (4.27% vs. 4.26% before). The S&P 500 index has risen by 3.7%, a similar movement to that seen in November 2016 when Donald Trump was elected for the first time. While this increase is notable, it is not as significant when we consider that in August, during the “carry trade” crisis on the yen, the S&P 500 moved by 6%. The Nasdaq, which often symbolizes American exceptionalism, rose by 3.4%, a more modest increase.

Regarding currencies, the euro has fallen by 3.6%, while the German Bund has gained 2.2%, and the DAX index is up by 0.7%. China has been more affected, with its stock market dropping by 4.3% and the renminbi depreciating by 0.7%. Gold, on the other hand, has decreased by 3.6%.

Two Possible Explanations for This Reaction

There are two possible explanations for this relatively subdued market behavior. The first is that Trump’s victory was, in part, anticipated, even though in the weeks leading up to the election the polls showed a substantial tie. Trump is a known figure, and his general policy guidelines for his second term do not displease the markets, especially those in the stock market. There remains an expectation of an economic scenario with growth, contained inflation, central banks oriented toward rate cuts, and a geopolitical landscape that is active but under control. In this narrative, tariffs do not seem to be a major threat. They are seen more as an economic factor that would not generate alarm if their impact is moderate.

The second narrative complements the first but introduces a more cautious perspective: the markets appear calm because they are still uncertain about how to interpret the new administration. Although the markets are not making bold bets, there is still uncertainty regarding the exact policies that will be implemented under Trump’s leadership.

Geopolitics and Global Trade

From a geopolitical perspective, some analysts argue that Trump could try to restore American supremacy, similar to how Reagan defeated the Soviet Union in the 1980s by increasing military spending and adopting a tough stance against China. However, others believe that Trump might be the one to scale down an overextended American empire, possibly in a less destructive way than Gorbachev did with the Soviet Union.

Regarding trade policy, while Trump has shown intentions of confronting China with tariffs, he might also seek diplomatic solutions, such as re-engaging with Russia to put pressure on China. Markets are waiting to see whether this strategy leads to a prolonged trade war or if tariffs are swiftly removed after negotiations.

Global Response and Europe’s Reaction

In response, the rest of the world has largely turned to currency devaluation and interest rate cuts. These moves are positive for global growth but could also increase trade tensions, especially with a boost to the competitiveness of exporters in markets like China. Europe, on the other hand, faces the difficult choice of either strengthening its trade relationship with the U.S. by imposing aggressive tariffs on China in exchange for favorable treatment from Trump or trying to keep trade with China open, even at the cost of new U.S. tariffs.

Markets Keeping a Low Profile and Traditional Sectors

Given the global uncertainty, markets seem to be adopting a more cautious stance, focusing on traditional sectors. Major tech companies continue to grow, especially in artificial intelligence, although certain segments like phones and PCs are showing signs of fatigue. As for inflation, there is emerging pressure, particularly in wages in the U.S., though a slight economic slowdown should moderate price increases.