Unless you’ve been living under a rock or still busy reeling from the latest Sherlock plot twists, you’ve probably witnessed how U.S. President-elect Trump’s press conference caused a ruckus in the markets. With at least four years of the Donald in office, we’re probably looking at quite a number of these bombshell moments lined up. Are there ways to profit from these scenarios?
1. Don’t panic!
At some point during Trump’s tirades, it may seem like all hell is breaking loose in the financial markets but I can’t stress enough how crucial it is to remain calm instead of blindly hopping in to catch the big moves. Just ask Cyclopip. More often than not, the investors are just having a knee-jerk reaction before remembering to take the Donald’s sweeping statements with a grain (or ten truckloads) of salt.
Besides, recent market reactions show that the sharp selloff is usually faded and U.S. equities even manage to chalk up some gains by the end of the trading session. In his latest presser, biotech and healthcare stocks took most of the hits but the indices were still able to end in the green.
Aside from watching Trump’s speeches, it might also help to keep tabs on his tweets which often contain his late-night musings on Russia, Mexico, Hillary, the automobile industry, pharma companies, Air Force One, among many others. Some of his tweets have actually moved the markets but analysts have noted that there could be a “buy the tweet, sell the retweet” situation going on.
2. Watch the Mexican peso.
As far as currencies go, it seems that the Mexican peso is bearing the brunt of Trump’s words since the President-elect has repeatedly spoken against illegal immigration, building a wall along the border, and slapping higher taxes on Mexican auto manufacturers. His latest presser was no exception, causing the currency to hit a new record low against the U.S. dollar.
Speaking of the Greenback, the U.S. currency has also taken a few hits when investors show signs of panic but it’s worth noting that the Fed’s interest rate hike timeline and its safe-haven appeal can keep it supported in the near term. Moving forward, the USD/MXN pair could be the one to watch during Trump’s future speeches as he seems to have no plans of backing down from making things extra challenging for Mexico.
3. Consider trading the VIX.
If there’s anything that you can count on during these Trump moments, it’s that the volatility index or VIX usually spikes when uncertainty sets foot in the markets. It’s dubbed the “fear index” for good reason!
Several brokers offer volatility-as-an-asset trading with ETFs tied to the VIX, which basically indicates how much volatility we may see, a measure based on the prices of S&P 500 Index options. Simply put, the higher the degree of uncertainty or fear, the higher the VIX reading (i.e., more people are willing to pay higher prices for S&P 500 Index options to protect their portfolios).
A VIX reading below 20 suggests low volatility or lower expectations for prices to fluctuate wildly. On the other hand, a VIX reading above 30 is a sign of high volatility or expectations for prices to make huge swings.
There you have it, ladies and gents! Have you been able to make YUUUUGE profits off Trump’s remarks so far? Do share your strategies in our comments section!
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