U.S. stock markets are facing a dramatic tumble at the open, but one with a magnitude more akin to ‘4’ on the Richter Scale than ‘9’, after Donald Trump’s shock presidential election win.
S&P 500 have futures pared back losses as deep as 5% to trade just 2% lower at the time of writing.
Also worth remembering: whilst indicators like Average True Range (ATR) are less useful for extreme market episodes like Wednesday’s, they are popular tools with traders and place limits on prevailing views about market swings.
Such views can of course be self-perpetuating.
ATR readings for notable S&P 500 routs—like on 24th June, and the height of autumn 2015’s ‘yuan devaluation’ sell-off—suggest an S&P drop contained well within 5%.
(The U.S. benchmark index fell less than 3% at its worst on 24th June, though it did lose about 5% over two days before rebounding on 28th.)
One reason for the moderate wind-back of bearish expectations could be that whilst market-preferred candidate Hillary Clinton lost the White House race, The Republican Party aced just as critical races for the Senate and the House of Representatives.
Paul Ryan, the Rep. House Speaker was comfortably re-elected, and a closer and widely scrutinised race for the re-election of Patrick Toomey for the crucial Pennsylvannia Senate seat was also won.
There had been fears that the staunch fiscal conservative—who still has not formally endorsed Trump—might become another Trump political victim.
With projected probability of both Senate and House now well above 90%, U.S. stocks may be reflecting the view that built-in checks and balances will come into play.
Naturally, the fact that the GOP is dominated by its traditional wing also implies that an unpredictable Trump administration will not have anything like a free rein.