The best advice anyone could ever receive in their formative years is that whenever an important and emotional decision needs to be made, it often helps to “sleep on it.” Or at the very least, pause for a few minutes to think about the ramifications of your decision. If someone wrongs you on Twitter, the first reaction may be to fire off a nasty response, but if you stop to think about it, more often than not, your better judgment prevails and you choose to ignore the trolls rather than ratcheting things up. Just this week, Gmail introduced a new feature that allows users to retrieve embarrassing emails sent in the heat of the moment, so if you hit send and then have second thoughts, you can try and undo what you have just done.
So, what does all of this have to do with the financial markets? You can probably guess, but we’ll show you anyways. Last night, when it first became apparent that Donald Trump was staging one of the biggest political upsets in a generation at least, global financial markets went haywire, with US equity futures plummeting. After initially rallying following some positive exit poll data for Clinton, things turned south as results in Florida suggested a win in that state for Donald Trump. As shown in the chart below, at one point just after midnight when it became clear that Trump would win the election and news anchors were gasping and some outright getting choked up, S&P 500 futures were down close to 6% from their earlier highs.
With that in mind, someone listening to the news and staring at their screens last night seeing a market down more than 5% may have been tempted to act brashly and sell. It may have felt good at the time, but if you decided to sleep on it for a few hours, you would be looking at a whole different picture this morning, when the futures and then cash trading erased nearly all of their declines. You would have also probably come to the realization that while the President is still the most powerful person in the world, no one person is bigger than nor has the power to control the US economy or the stock market. So even if you think Trump’s policies are bad for the economy (which half of America obviously didn’t believe), the US government still has a number of checks and balances in place to counter any possibility of destructive policies, even if one party controls the Oval Office, Senate, and House. The action overnight also reminds us of another piece of advice we have heard over time – nothing ever good happens in after-hours trading.