The stock market behaved rather strangely in the period before and after the November elections. Before the election, stocks reacted negatively to each Trump surge in the polls, and stock futures fell late in the evening of November 8th, immediately after it became clear that Trump would win. Stock investors normally “root” for the GOP candidate. Indeed a GOP win in the presidential elections usually boosts stock prices by about 2% (although stocks actually have not done very well during GOP administrations.) To make matters even more confusing, stocks rallied strongly in the days and weeks after the election.

One possibility is that prior to the election investors were worried about Trump’s call for protectionism and expelling illegal aliens. After the election, they were reassured that Trump would behave more pragmatically, and heartened by expectations that Trump would sign GOP tax cuts and also engage in deregulation.

A similar pattern occurred in the UK after the recent Brexit vote, where stocks initially fell and then rallied strongly.

One can discern two types of Trumpism. One type is very populist and nationalistic. Trump adviser Steve Bannon has been pushing for nationalistic economic policies and FDR-style spending programs to boost the economy. In contrast, Jared Kushner and Gary Cohn have a more internationalist perspective, and are more aligned with both Wall Street and the free market wing of the GOP.

Last night, Emmanuel Macron came in first in the French presidential election, and is now widely expected to win in the second round against Marine Le Pen. Think of Le Pen as being like the Steve Bannon side of the Trump administration. Le Pen is like Trumpism without the attachment of the GOP (or the UK Tories.) Like Trump, Le Pen is a nationalist on economics and immigration. Unlike Trump, she’s also very left wing on broader economic issues.

The French stock market is up over 4% as I write this post, reflecting relief that Le Pen is not likely to win. While the election outcome was in line with the polls, the recent surge of a far left socialist had led to some concern that Macron would not even make it to the second round. Indeed four candidates ended up bunched together in the 19% to 24% range, with Macron being viewed as the most electable alternative to Le Pen. If Macron had not made it to the second round, the French stock market might well have plunged sharply, especially if the only two choices had been on the extreme right and the extreme left. (Le Pen is viewed as being on the right, despite her vaguely socialist views on government spending.)

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To summarize, the recent market response to the French elections helps us to better understand the previous market reactions to Trump (and perhaps to Brexit.) Investors are less concerned by moderate nationalism if it is embedded within a “conservative” administration that it sees as relatively business friendly. But there is one additional factor in the French election that differs from the earlier US and UK votes. France is part of the eurozone, and a win for Le Pen might have cast doubt on the future of the single currency project. This may explain why markets rallied strongly all across the eurozone. Indeed, stocks in Italy rose even more sharply than in France, as Italy has been widely viewed as a potential domino if the euro should start to unravel.