The following article, originally published at 6:17 p.m. on Wednesday, Nov. 9, 2016, has been updated with market data and analysts' comments.
One constant in American life is change, former Treasury Secretary Henry Paulson observed just after the ballooning financial crisis led to the near failure of investment bank Bear Stearns in early 2008. Nowhere is that more evident than in the financial markets.
What Paulson, who was focused at the time on the risks spiraling out of the $14.8 trillion mortgage market, didn't mention was that change can be a money-maker under the right circumstances.
That was the case after British voters unexpectedly decided to pull out of the European Union in a late June referendum, driving up fixed-income trading volume and revenue at the biggest U.S. banks during July, August and September. And the phenomenon may well repeat itself after real estate mogul Donald Trump's surprise victory against Democrat Hillary Clinton in the U.S. presidential election.
As with the so-called Brexit vote, polls and odds-makers had predicted the exact opposite. Since Trump's policy stances haven't been nearly as firmly developed as Clinton's, and their effect on the U.S. economy -- the world's biggest -- is largely unknown, the effect of his growing lead on Tuesday night and eventual win was immediate.
The shift is "going to be good for volatility, and volatility will drive market volumes," R.J. Grant, director of equity trading at brokerage Keefe, Bruyette & Woods, said in a telephone interview Wednesday. "We are seeing a pretty intense pickup in activity this morning, and we are expecting that to remain the case for quite some time."
The volume of currency trades on JPMorgan Chase's (JPM) Asia desk was about six times the normal volume on Wednesday, according to a person familiar with the operation. That was similar to the Brexit volume at the New York-based bank, which had assigned a few dozen traders in New York to help its Asia operations handle any volume spikes, and it was smoother. No e-commerce issues or pricing disruptions were reported.
Trades on the BrokerTec fixed-income platform were $177 billion, shattering the Brexit volume of $131 billion, the person said, and gold-trading volume was three times the level reached during Britain's vote. Yields on U.S. 10-year Treasury notes surged by the most in three years.
At Morgan Stanley (MS) , meanwhile, currency trades reached about half the volume of Brexit even before U.S. markets opened after the election, according to a person familiar with the matter.
In equities, turnover of 5.2 trillion yen ($49 billion) in Tokyo was more than double the 20-day average on Wednesday, as was the $458.6 billion in U.S. composite trading, according to data gathered by Bloomberg.
While U.S. futures plummeted during overnight trading, major indexes rebounded during the day, with the Dow Jones Industrial Average and the S&P 500 both rising more than 1%. The KBW Bank Index climbed 4.9% to the highest level in at least a year, on speculation that post-financial-crisis regulations might be loosened under a Trump presidency.
There are risks, however. Market turmoil in coming weeks could hurt consumer confidence and curb spending, while leaving businesses reluctant to make major investments in factories and equipment, David Doyle of Macquarie Capital said in a note to clients. Both Macquarie and Bank of America trimmed short-term forecasts for U.S. economic growth.
"The markets have taken the results in stride," Michelle Meyer, a Bank of America economist, said on a conference call with reporters on Wednesday. "It's more of a risk-on environment."
The S&P 500's median drop after macro-economic shocks has been 6%, said Savita Subramanian, the head of U.S. equity strategy for the bank's Merrill Lynch global research unit. At the close of trading Wednesday, the index was only 1.2% below its August high, though it pared gains the next day.
"Risks to the downside may still exist as we move forward and get a little more clarity," Subramanian noted. "The risks could be more long-lived than what we saw post-Brexit, since positioning today, at least within the U.S. investor base, is more aggressive than it was in June."
What that will mean for trading desks, ultimately, remains to be seen. During the third quarter, Morgan Stanley's fixed-income trading revenue rose 61% to $1.48 billion, the New York-based company said in October.
By comparison, Goldman's revenue in the business climbed 34% to $1.96 billion, JPMorgan's rose 48% to $4.33 billion, Bank of America's added 32% to $2.65 billion and Citigroup's increased 35% to $3.47 billion.
In equity trading, only JPMorgan and Morgan Stanley posted gains for the period. The other three all reported double-digit declines.
How those stock businesses might benefit from Trump's victory will probably not be clear until banks report fourth-quarter earnings in January. As of Thursday, the higher volumes were continuing, with trades in the U.S. still more than double the 20-day average and $185.3 billion in securities changing hands shortly after 11 a.m.
"Because Trump's policy proposals have generally been short on details but long on revolutionary rhetoric, we should expect a significant immediate spike in uncertainty," James Sweeney, an economist with Credit Suisse, said in a note to clients.
Indeed, the election probably marks "the biggest increase in domestic and foreign policy uncertainty in the U.S." since the end in the 1970s of the Bretton Woods agreement that pegged the dollar and other currencies to gold, "and possibly since the early 1930s," the beginning of the Great Depression," Sweeney said.
"Trump will learn quickly the power of his new pulpit," the economist added. "The market will react to any specifics it hears."