Stock Market Crash December 2016 update: Consequences of Trump

November was a much better month than expected with the S&P gaining 3.4%. The initial reaction to Trump becoming the next president of the United States was a crash but very quickly the stock indices recovered and even made new all time highs. Just like with the Brexit the initial reaction of the financial markets was bad, but eventually they recovered  and went higher than before. Basically all stop losses traders put before the election were hit, so a lot of algorithm traders had a huge payday. The Dow Jones ended a whopping 5.5% higher and the Nasdaq 2.6%. It was interesting to see that the FANG stocks are losing momentum, the worst since March 2014.

The gain in the stock market after the win of (protectionistic) Trump is now explained by his points of less tax and more spending. Markets are now going up on huge volume which you normally also see near the top of a cycle. Investors don’t seem to care (yet) that interest rates are going up which will cause huge problems all segments of the economy. Europe, the US and Japan have huge debts which will be problematic with a higher interest rate. Also the very overheated real estate which drove the economy will be cooled down by the higher interest rates. Less people will be able to buy houses. Last but not least companies were able to have very cheap loans. Higher interests mean less profit.

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