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Unexpected Election Outcome Begets Unexpected Winners and Losers

Unexpected Election Outcome Begets Unexpected Winners and Losers

(Bloomberg) -- Here’s one way to sum up how markets behaved following the U.S. presidential election: Investors didn’t do what they were expected to do after American voters didn’t do what they were expected to do.

Donald Trump’s upset victory was supposed to tank developed stock markets, especially in the U.S. Instead, the Dow Jones Industrial Average closed its best week since 2011 at a record high. Investors were supposed to flee to safety and send the Japanese yen, Treasuries and gold soaring. All three have fallen 1.4 percent or more since the election. The U.S. dollar was sure to plunge. Nope: The greenback had its strongest three-day rally in five years. Emerging-market securities and tax-free municipal bonds are among the few assets reacting as predicted: They’re getting crushed.

Unexpected Election Outcome Begets Unexpected Winners and Losers

Here’s a look at the winners and losers.

Stocks

The big story of the week was the beating emerging equity markets took on fears that President-elect Trump’s protectionist proclivities will crimp their exports. Of 68 emerging country stock indexes tracked by Bloomberg, 51 fell in the three days after the election. Latin America took the biggest hit with Mexico, Brazil, Argentina and Colombia being the world’s worst performers. The U.S. ranks among all four countries’ top three trading partners.

Unexpected Election Outcome Begets Unexpected Winners and Losers

While more developed stock markets fell (18) than rose (eight), the damage was much more limited. Only five dropped more than 2 percent -- New Zealand, Portugal, Spain, Denmark and the Netherlands. The MSCI World Index of developed economies rose 0.3 percent post-election. The Stoxx Europe 600 Index added 0.8 percent, though it fell in dollar terms.

In the U.S., the rally has been led by cyclical stocks. The S&P 500 Financials Index soared 8.3 percent in three days to levels last seen in May 2008. All 64 members ended the week up at least 2.3 percent, on hopes for eased banking regulations. Industrial companies were the S&P 500’s second-best performer, fueled by Trump’s promises of massive infrastructure spending increases.

The Nasdaq Biotechnology Index had its best week since 2000, up 14 percent on relief that Democrat Hillary Clinton’s plans to rein in prices were dashed. Generic drugmaker Endo International Plc soared 21 percent in three days, fourth best in the S&P 500, after an Election Day earnings beat gave it an added boost.

Utility and consumer-staples stocks, traditional havens, fell. The biggest post-election loser in the S&P 500 was managed care provider Centene Corp., which was downgraded to neutral by Credit Suisse Group AG amid fears that Trump’s plan to dismantle Obamacare will hurt such companies.

Government Bonds

The more the U.S. government spends, the more bonds it sells, increasing supply, depressing prices and increasing yields and, more generally, borrowing costs worldwide. So Trump’s ambitious spending plans tamped down demand in the Treasury’s post-election auctions of 10- and 30-year obligations, particularly from foreign central banks and mutual funds.

The benchmark 10-year U.S. Treasury yield surged 37 basis points this week, the most since the so-called taper tantrum in June 2013, as inflation-expectation gauges soared. Long bonds fared worse, with investors holding 30-year Treasuries losing 6.8 percent in the first 10 days of November, Bank of America Corp. data show. The U.S. yield curve is the steepest it’s been in 2016.

Moves in the U.S. weighed on sovereign debt around the world, with 10-year yields in all but two of 24 developed nations climbing at least 15 basis points. In total, more than $750 billion was wiped off the value of government bonds worldwide. German 30-year yields rose to the most since May. Italy’s reached the highest since July 2015, and its borrowing costs increased at an auction of debt due in three decades on Friday, allotting the securities at the highest yield for a sale of 30-year bonds since July 2015.

Unexpected Election Outcome Begets Unexpected Winners and Losers

State and local-government bonds tumbled this week as Republican plans for big tax cuts lessened tax-free municipal debt’s appeal. The yield on the Bond Buyer’s 20-year index jumped a quarter-percentage point to 3.52 percent, the biggest weekly increase in six years.

Corporate Finance

Oil explorer and driller company bonds were among the top gainers in the corporate bond markets on speculation that Trump, a climate-change skeptic, will be friendlier to fossil fuels than Clinton would have been.

Unexpected Election Outcome Begets Unexpected Winners and Losers

Hospital group Quorum Health Corp.’s bonds rallied after the company reported better-than expected third-quarter results, even as many of its rivals’ notes declined over fears that Republicans will repeal President Obama’s Affordable Care Act. Debt tied to mining companies rallied, as did the bonds of prison operators, driven by speculation that Trump may scrap a government policy against privatized correctional facilities.

Currencies

The dollar was the big winner. The Bloomberg Dollar Spot Index gained 2.8 percent this week, the most since September 2011. The gains were the most pronounced against developing-world currencies, with the MSCI Emerging Markets Currency Index falling 2.3 percent in its worst week in more than three years.

Unexpected Election Outcome Begets Unexpected Winners and Losers

The Mexican peso fell 8.7 percent, the most since 2008, to a record low. The South African rand lost 5.3 percent. The pound was the only major currency to best the dollar, eking out a 0.6 percent gain and rising even more against its other major peers as political risks shifted from Brexit to America and Italy’s constitutional referendum next month. The euro was in the middle of the pack with a 2.6 percent loss against the greenback.

Commodities

Trump was meant to be gold’s best friend. Signs he was closing in on Hillary Clinton in the election run-up reignited a year-long rally that had begun to flag. Since winning, his plan to boost the economy sent gold spiraling amid fears it will speed the Federal Reserve’s interest-rate hikes. Gold fell almost 6 percent in its worst week since June 2013.

Unexpected Election Outcome Begets Unexpected Winners and Losers

Trump’s promise of $550 billion in infrastructure spending sparked a buying frenzy for industrial metals like copper, surprising analysts from Goldman Sachs Group Inc. to Long Leaf Trading Group Inc. Copper gained 11 percent, its best week in at least four years. Coal, an industry that Trump promised to revive, remained essentially flat after the vote, and oil fell 4 percent on dual concerns about where the U.S. market is heading and OPEC being unable to support prices by limiting output.

--With assistance from Claire Boston Brian Chappatta Anna-Louise Jackson William Selway Andrea Wong Reg Gale and Lukanyo Mnyanda To contact the reporter on this story: Phil Kuntz in New York at pkuntz1@bloomberg.net. To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, John McCluskey