Investor reaction to Donald Trump’s victory in the US election was a result of technical movements in the futures market rather than any sentimental approval of the president-elect’s policies, according to Principal Global Investors’ (PGI) chief executive Jim McCaughan.
McCaughan said the initial response to Trump’s triumph could be explained by the dropping of futures on the Dow Jones Industrial Average, a move which enabled investors to “buy the dips” before the hedges unwound and brought the market back to its previous position.
Dow futures fell by as much as 750 points last Tuesday as a Trump victory became clearer cut, particularly after he won the states of Ohio and Florida. However, they gained some 316 points following his victory speech in which he claimed to be a “president for all Americans”.
McCaughan (pictured), described the move as “almost entirely technical” and not a sign that the market was approving of Trump’s policies.
“We do not know what the market thinks of Trump’s policies as they have not happened yet,” he added.
He said while the resulting volatility was “scary”, it also presented an opportunity for investors in the short to medium term, particularly in US equities.
McCaughan was speaking on Friday at the launch of a whitepaper published by PGI and Create Research, entitled 2008: A turning point in the history of investing.
The paper, written by Create Research chief executive Amin Rajan, argues the 2008 financial crisis was “turning point” for investing because it brought into sharp focus the fact that conventional diversification based on asset classes did not work at a time it was most needed.
As a result, investors have been forced to focus on specific investment tools, vehicles and asset classes such as diversification by risk factors, absolute return investing and the core-satellite model – as well as investment vehicles including smart beta, multi-asset and exchange traded funds (ETFs).
Meanwhile, asset classes such as real assets and alternative investments have come to the fore as investors continue the search for yield – a situation exacerbated since the start of the decade by unconventional monetary policy which has inflated traditional asset prices.
Rajan said: “Are these approaches likely to outlast the crisis – the event which brought them to prominence? Yes. Will investors benefit from these in future? Yes.”
