You've been Trumped ! What to expect in the financial market.

Most of the world is struggling to make sense of Donald Trump being in the U.S election and become the 45th U.S. President.

Global Markets were thrown into chaos as result of the 2016 U.S presidential election. Indeed, we are already starting to observe a lots of volatility with major stock markets tumbling. However, in the hours after the president is elected, investors need to brace for more volatility. What they shouldn’t do is panic.

Historically, the day after the presidential election is usually very volatile and regardless of how prices will react today the next day moves are useless in telling what comes after.

As you can see, in the last 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average of 1.8 percent. The following years, stocks reversed course and moved higher over the next 12 months in nine of those instances, according to a data compiled by Bloomberg.

As a matter of fact, while the indexes might swing in different directions, more likely to plummet as Donald Trump is being elected, gains or losses over those next 24 hours are less than half the time to predict the market’s direction in the next 12 months.

The reason is that uncertainty generate fears. This fear is then converted into the compulsion to sell, therefore volatility.

I believe that the market will be more volatile that it has been in the past following any election. Nonetheless, this volatility can be a buying opportunity for many investors that have a long time investment horizon.

For people that invest on a regular basis, this opportunity will result in buying the same investments at a cheaper price and therefore more units will be allocated into their portfolios.

A very famous Warren Buffet’s quote is “be fearful when others are greedy and greedy when others are fearful”

The latest example is Brexit. Many investors were sure that Brexit will not happen and that the referendum’s result will be against it, while many got it wrong, the uncertainty regarding this referendum’s result generated in a lot of volatility across the globe with massive sell-off.

As an example, on June 24, after the Brexit vote, the S&P 500 was plunging 3.6 percent on concern that it would snarl trade and spur a global recession. Since then, beside the British pound, we saw how markets recovered and stocks were up 2.3% earlier this week.

To be continued …