The Aftermath of a Trump Victory

The unexpected election of Donald Trump unleashed a wave of market uncertainty as investors tried to predict what the next four years would look like.

Early Tuesday night, as the new President-Elect Donald Trump pulled ahead in key battle ground states like Florida and Ohio, it began to become clear that the US election would not end the way investors expected.

By midnight, futures for the Dow Jones Industrial Average had plunged 750 points, Asian markets had fallen, and the Mexican peso had dived to a record low against the dollar.

“After one of the most bitter and divisive US presidential election campaigns in living memory, the outcome is arguably the one that markets were dreading,” wrote Neuberger Berman CIOs Joe Amato and Erik Knutzen in a note released early Wednesday morning.

With polls strongly favoring Democratic nominee Hillary Clinton in the weeks leading up to the election, markets had not priced in a Trump win, argued Columbia Threadneedle’s Mark Burgess and Jim Cielinski in a video posted Wednesday.

“This was a huge upset,” Cielinski said. “Markets had moved higher in recent days reflecting a maybe 20 to 25% chance of a Trump victory and probably lower for a clean sweep, so this has really taken the pollsters and the markets by surprise.”

Markets have since rebounded dramatically from Tuesday night lows, as investors grew optimistic about campaign promises of lower government regulation, especially in sectors like healthcare. But given a lack of concrete policy proposals from the president-elect, volatility fears remain as a result of uncertainty over what exactly a Trump administration will mean.

“Markets could go down materially because Trump is such a wild card,” wrote Portfolio Manager Jeff Rottinghaus in an outlook released by T. Rowe Price early Wednesday.

Market uncertainly could even delay the expected increase in interest rates—according to Neuberger, “a December rate hike from the Federal Reserve, priced as almost a certainty the day before yesterday, may now be off the cards.”

However, over the longer term economists like Schroders’ Keith Wade projected Trump’s fiscal policies will result in the end of the low-rate environment.

“President Trump’s fiscal policies will cut taxes and spending, but will most likely lead to higher interest rates, inflation, and a bigger budget deficit,” he wrote in a blog published Wednesday.

While the volatility brought by Trump’s unexpected victory will present opportunities for active investors, it should also serve as a reminder of the importance of risk management, argued Redington Head of Investment Consulting David Bennett.

“Brexit and the US election are unlikely to be the only event risks that a long-term investor will encounter over their investment horizon,” he wrote in a note to clients Wednesday. “While predicting political events and the resulting market impact remains difficult, risk management discipline and diversification remain available.”

Related: Trump vs. Clinton: Does It Matter?