President-elect Donald Trump proved he can move markets, but how persistent the Trump effect will be remains to be seen.
Mr. Trump said at his press conference Wednesday that pharmaceutical companies were “getting away with murder” on drug pricing. That sent health-care stocks into a tailspin. Health Care Select Sector SPDR (XLV), the largest exchange-traded health fund, fell 1%, and iShares Nasdaq Biotechnology ETF (IBB) fell 3%. Both funds rebounded slightly Thursday with XLV up 0.4% and IBB up 0.1%
Mr. Trump's views on financial regulations have had the opposite effect on bank stocks, sending them on a tear.
Presidents tend to treat the financial markets with kid gloves, fearing that a misplaced remark will send the markets tumbling. The most famous example: A feud between President John Kennedy and the steel industry. Mr. Kennedy felt the steel companies had double-crossed him. "My father always told me that all businessmen were sons of bitches, but I never believed it until now,” he said.
That comment, reported in the New York Times on April 23, 1962, sent the market into a tailspin. The Standard & Poor's 500 fell 29% from that date until bottoming near the end of June. The event went down in history as the Kennedy Slide of 1962.
The health-care industry underwent a meltdown once before, when Hillary Clinton unveiled her plans for universal health insurance in 1993. But that was sparked by potential legislative changes, rather than a president (or president-elect) calling out companies or industries.
Mr. Trump doesn't seem concerned about the markets' views on his statements, although market participants do. Traders in Mexican pesos have been joking — more or less — about buying Twitter and shutting it down, on the theory it would be cheaper than central bank intervention, according to Bloomberg. One dollar was worth about 17 Mexican pesos in April. A dollar is now worth nearly 22 pesos.
“Market volatility does seem to turn on a tweet,” said Sam Stovall, chief investment strategist for CFRA. And that volatility is not just downward. The stock market has soared since Mr. Trump's election — something that Yale economist Robert Shiller recently chalked up to “animal spirits.”
Speaking on CNBC, Mr. Shiller said Mr.Trump is a "motivational speaker" with a "tremendous self-confidence" that's contagious.
But Mr. Shiller also said that Mr. Trump makes him nervous — a sentiment that some U.S. companies seem to share. Already, companies such as Amazon and General Motors are trumpeting their plans to add U.S. employees, even if those plans were made before Mr. Trump won the election.
"Investors should ignore his tweets, but speculators should hang on every word," said Jack Bogle, founder of the Vanguard Group. "What matters is what GDP will be 10 years from now. If you have an idea that the country will still be prosperous, that's the best bet you can take."
Trump's proposals -- lots of borrowing and spending on infrastructure -- is "Keynes at his best," Mr. Bogle said, referring to economist John Maynard Keynes. But Mr. Bogle said Trump's long-term effects, such as a less supporting view of NATO and a greater gap between the rich and poor, would be "bad for society and the economy in the long run."
Mr. Stovall thinks that the Trump Effect on markets may not last. “The more he does this, the more investors look on his commentary as the boy who cried wolf,” Mr. Stovall said. “They're more likely to focus on pending legislation and see how it will benefit the economy.”
And some of the industries that Mr. Trump targets could be great buying opportunities after the selloff. Healthcare stocks could be one example of that. “Look what happened to healthcare after the HillaryCare debacle,” Mr. Stovall said.