Wall Street closed lower yesterday, as the market reacted strongly to President Trump’s new immigration policies. Since the elections, investors have seemed focused on all the things he has promised to help businesses with, such as tax cuts, decreases in government spending, and deregulation. These promises may have propelled Wall Street to all-time record highs. Since the 8th of November 2016, the Dow Jones gained 7.25% and the S&P500 9.61%.
Analysts believe that The President’s recent actions on US immigration may have caused the markets to take a downturn. The Dow Jones lost up to 223 points during yesterday’s trading sessions, ending the trading session with a loss of 122 points. The S&P500 lost 13.79 points and the Nasdaq Composite slid 47.07 points.
Dow Jones’ 20,000 points are at risk
The psychological level of 20,000 was highly monitored by investors around the world, as some view it as a significant milestone. Other investors believe that the construction of the Dow Jones index is not a fair representation of the American stock market’s evolution, as it is a price-weighted index. The Dow Jones also represents just 30 American companies.
Investors see President Trump’s immigration order as another decision that is not related to the pro-growth and pro-business environment promised by the new President. Looking ahead, investors seem to worry about when international issues will be pushed aside in order to deal with domestic agendas. As long as economic reforms do not seem to be on the Trump Administration’s agenda, market participants could remain impatient and think twice before entering the markets.
Rising Volatility
Volatility has increased, as we can see with the VIX index, which jumped 12.5% to reach 11.9. With so many uncertainties and international risks, volatility may keep increasing in the following days.
The gap between economic/political reality and expectations hasn’t been that wide for a while, so any news or events that might widen this gap even more could weigh on markets.
Investors are also worried about relations between President Trump and the international community, as his desire to implement strict protectionist measures have angered other world leaders. For example, the White House may tax Mexican products to finance the construction of the wall between the US and Mexico. The risk is that Mexico could retaliate and decide to apply tariffs on American products imported to Mexico.
President Trump is seen by many as a threat to the European Union’s stability, especially regarding the BREXIT issue. UK Prime Minister Theresa May was the 1st foreign official to meet with the US President last week. To compensate for the possible loss of the European single market, Prime Minister May needs a powerful ally: the United States. After the European Union, the US is the 2nd largest trade partner for the UK, so trade relations between the 2 nations are important for British growth.
As a safe-haven asset, Gold should be watched, as volatility and uncertainties will keep increasing
Image 2: Gold – Weekly
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