American investors are surprisingly upbeat about Donald Trump's shock ascension to the US presidency, saying the big spending real estate mogul could trigger overdue inflation via his debt-funded plan to unleash a wave of infrastructure investment and to slash taxes.

Shares on Wall Street lifted about 1 per cent on bets the Republican clean sweep of the White House and Congress is poised to end six years of legislative gridlock and deliver a pro-business agenda on tax and regulation.

US markets failed to follow the 4-plus per cent dive in the S&P 500 futures index or earlier global stock rout in response to Mr Trump's upset victory.

Investors pointed to Mr Trump's magnanimous victory speech pledging to unite a divided country and his vow to invest in underfunded infrastructure, which would take pressure off the US Federal Reserve to keep interest rates near zero.

Fund managers expressed hope that conservatives in Congress would constrain his trade protectionist populism and try to keep the budget deficit under control.

The potential for a fiscal stimulus and Trump inflation wave caused the yield on the ten-year US Treasury bond to surge above 2 per cent, from 1.71 per cent, even as economists trimmed bets on the Fed raising rates next month due to political uncertainty from the billionaire's shock election.

"Inflation is the big issue," Bernstein Advisors chief investment officer Richard Bernstein said.

Mr Trump has vowed to go on a spending spree on infrastructure and defence, which could lift subdued inflation and allow the Fed to raise rates more in the longer term.

The president-elect wants to slash the US corporate tax rate to 15 per cent, from 35 per cent, and reform the system to encourage multinationals such as Apple and Google to repatriate $US2.5 trillion stashed offshore.

The real estate tycoon has also threatened to impose tariffs on foreign goods and to cut the amount of foreign workers, both of which would push up prices on imports and wages.

David Fuller's view

Most of us were surprised by this election result, not least Donald Trump and Hillary Clinton, judging from their campaign teams as the counting of votes commenced.  Before any results were in, Trump’s team was described by one network as “having the atmosphere of a morgue”.  In contrast, Clinton’s was moderately upbeat. 

This gradually changed as the evening progressed, with the optimism of Clinton’s team giving way to concern, anxiety and eventually despair several hours later.  Trump’s campaign leaders looked initially surprised by the first results, followed by increasing hope and eventually the first hugs of joy as Florida became a probable win.  At that point I knew I was in for a long evening. 

Trump had been described as “the least nervous person in his family suite” by one commentator.  Later, he was reassuringly calm, if slightly nervous, and appropriately inclusive in his victory speech.  I suspect Clinton may not have had a concession speech until today.     

Initial financial gyrations as Trump’s victory was being realised reflected thin market conditions and the dominance of machine trading.

Also, many people had been forecasting market turmoil in ‘the unlikely event of a Trump victory’.  Volatility was inevitable given the unexpected election result.  Nevertheless, there are logical reactions this evening to Trump’s provisional policies, not least as Republicans have maintained control of both Congressional branches of government.  This means that he has a far better chance of largely implementing his policies, than would have been the case if Clinton had won.

Trump’s programme of slashed taxes for both businesses and all taxpayers is a bold dash for GDP growth.  It is also inflationary, which is the last thing many long-term investors in government bond markets have been expecting.  Today’s surge above a yield of 2% by US 10-Yr Government Bonds reaffirms the July low of 1.3180% as the end of this 3.5 decade bull market.  In chart parlance, a double bottom with the earlier trough in mid-2012 will be increasingly apparent with sustained breaks above 2.5% and eventually 3%. 

Today’s stock market surge by the S&P 500 Index and the sharp rally since 4^th November indicate that the bull market is not yet over, although it is at a mature stage.  Judging from past cycles, rising bond yields are initially a stimulus for equities but increasingly a headwind after two or three rate hikes. 

The rise in metal prices following the CRB US Spot Metals Index trough commencing in late 2015 and reaction low in January 2016, is a late-in-the-cycle development.  It is recovering because prices are still cheap; supply cutbacks have occurred and demand is rising.  Cyclical recoveries in commodities and commodity shares will offset some of the deflationary concerns exacerbated by technological innovation. 

Lastly, some pundits were saying that there would be no Fed rate increase in December if Trump was elected.  I disagree; a 25 basis point hike next month is now a certainty, and will most likely be followed by at least two more increases in 2017.          

Here is a PDF of John Kehoe’s article.