Americans celebrated Thanksgiving last Thursday. The traditional harvest festival is the most important family holiday in the United States, on a par with Christmas in Germany. Wall Street is closed on Thanksgiving, as massive turkeys are served up all over the country; and Friday, a bridging day before the weekend, saw only a few hours of trading.
This short trading week has often given the economy a boost. Experts like to talk about the Thanksgiving effect, when stocks rise in the run-up to the holiday. It's a phenomenon that's been observed since the 1960s - and it usually lasts beyond the following Monday.
"Investors come back from the short holiday feeling positive and buoyant," says one stock market expert. "Particularly around Thanksgiving, Americans are in such a thankful mood that they're not going to let anything spoil their turkey." And indeed the Dow-Jones index closed at record highs in the three days of trading prior to Thanksgiving.
Financial markets hate surprises
So have we just seen another "turkey rally," before things go back to normal? Or is it in fact a Trump rally, as other experts believe?
What is unusual is that Wall Street, which would have preferred to see Hillary Clinton become president and was convinced that she would, has changed course in the weeks since the election. Instead of a share selloff, traders saw exactly the opposite: Shares are suddenly more sought-after than ever.
Financial markets hate surprises, and love continuity. Trump was a surprise, and market players have had to take a closer look at what the future president is planning in terms of economic policy. Realization number one: Since the election, Trump has presented a much more conciliatory face than during the election campaign. He's already backed off on many of his more radical promises or threats, and seems to be softening his language.
Secondly, Trump is a businessman, and he's not going to let his own caste be shortchanged. For example, he wants to bring in massive tax cuts and launch a big infrastructure program. Both are music to the ears of business. In addition, he's announced that there will be less intervention by the state, and investors are hoping he will relax environmental protection regulations. Shares in American companies are going up as a result.
Debt-financed stimulus programs
Lowering taxes and increasing spending on infrastructure means running up even more debt. Debt-financed stimulus programs, however, are seldom sustainable; they're more comparable to flashes in the pan, which quickly burn out due to lack of sustenance. For now, though, in the coming days and weeks, the American stock markets are focusing on the motto "America first."
"America first" means that Trump will make use of every available opportunity to privilege domestic industry. And he intends to do this by making free trade more difficult. He is being enthusiastically applauded for this by domestic industry and investors - who will presumably only realize much later that trading restrictions damage their economy, too.
Protectionism also affects US firms
Customs duties and other trading restrictions would not only be damaging for export-oriented nations like Germany or China. Many fields of industry carry out research and development at home, then have their products manufactured abroad. Protectionism à la Trump would seriously disrupt this complex global network of production and supply - perhaps even tear it apart. That would be damaging not only for Germany or China. It would also have serious effects on American industry, because it too produces goods abroad - in China, for example, or in Mexico.
Turkey rally or Trump rally: Either could turn out to be just a brief flash in the pan. Germany's "Süddeutsche Zeitung" comments that exchange rates rallied once before after a presidential election: in November 1968, when the Republican Richard Nixon was elected. It didn't last long, though: All the stock market gains had disappeared again by Christmas.
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