Trump won, so why haven't stock markets crashed?
Financial markets hate uncertainty, which is why it was widely predicted that a Donald Trump victory in last month's US presidential race would send investors rushing to hit the sell button.
The opposite, however, has played out, with US markets and other major exchanges taking Trump's victory in their stride, and the main three US stock markets - the Dow Jones, S&P 500 and Nasdaq - closing at record highs last week.
So why are markets behaving so favourably towards president-elect Trump? According to Jenny Jones, manager of the Schroder US Mid Cap fund, investors have been focusing on the positives a Trump presidency will bring, as opposed to the various threats and dangers.
The expectation of reflation borne out of fiscal policy to boost economic activity has been keeping markets buoyant. Trump has pledged to cut taxes, while also increasing infrastructure and defence spending.
Jones notes that the US market has already moved fast to price in the promised cut to the corporate tax rate, from 35 per cent to 15 per cent. US corporate tax is not payable by foreign subsidiaries and therefore has less impact on internationally focused companies.
Thus, as a consequence of the cut, 'the small-cap part of the US equity market has soared since the election', says Jones.
'These companies are almost exclusively US businesses with very little in the way of international exposure. For this part of the market the rally makes sense, because smaller companies are subject to higher taxes due to being more domestically focused.'
But Jones notes that in other areas the equity rally 'may be getting ahead of itself'. She adds: 'Some banks are up 20 per cent plus; that's one of the areas where I think the share prices have gone up too quickly.'
Markets, so far, have been betting on a much more moderate version of president Trump, as opposed to the unpredictable and at times irrational personality of the campaign trail.
According to Kim Wallace, director of political consultancy Renaissance Macro Research, this may be wishful thinking. Wallace says that 'due to the degree of uncertainty Trump brings, it is difficult to answer the question "what is the worst thing that Trump could do?"'.
Perhaps the biggest threat to the global economy, as well as being a major blow to globalisation, is Trump's protectionist stance, which includes the potential introduction of tariffs on imports from foreign companies.
Under a worst-case scenario a trade war between America and China could occur, in which case the US economy could be knocked off course. Certain stocks would inevitably be hit.
Canaccord Genuity Wealth Management says potential losers include US multinationals with sales exposure to the Asia Pacific region, including Procter & Gamble, Johnson & Johnson and Nike.
Marc Pullen, senior equity analyst at the firm, adds that many companies may also lose out, including those that source parts or even their entire products from China, such as Apple. 'So even those US companies with relatively few sales to China could suffer in terms of profit margins,' he says.
The emerging market regions, however, could end up being among the biggest equity market losers, a point that has been made by Neil Woodford, the high-profile fund manager.
Wesley Sparks, head of US credit strategies at Schroders and manager of the Schroder ISF Global High Yield fund, picks out a couple of reasons why it may turn out to be a bumpy ride for financial markets under Trump's presidency.
First, equity markets have been driven higher on expectation of fiscal stimulus. But Sparks adds that in the event of Trump not being able to get all his spending plans passed through Congress, 'expect a backlash'.
Sparks is also concerned about a growing government deficit under Trump's spending plans. He cites trade wars as another threat.
Sparks adds: 'The market reaction following Trump's surprise election is becoming overdone, and the key question from here is whether soft economic data will materialise to cause investors to question the real impact.
'There are reasons to be bearish, but ultimately the cause of a bear market or a recession is usually triggered by interest rates going up too aggressively or the housing market declining.'