FOR the second time this year, investors have been hit by a political shock: first, the Brexit referendum; now, Donald Trump’s election victory. And the reaction has been very similar; a knee-jerk sell-off followed by a pause to consider whether there might be some profitable opportunities after all.

As election night unfolded, markets moved pretty much as they had during the campaign when Mr Trump surged in the polls. Equities fell, Treasury bonds rose in price (causing yields to fall) and the Mexican peso took a battering. The futures contract on the Dow Jones Industrial Average dropped by more than 800 points at one stage. Asia followed suit with widespread declines: the Japanese stockmarket dropped by 4.6%. The Mexican peso dived to a new low of nearly 20.8 to the dollar.

Gold gained ground, as if often does when investors are nervous.

But the nature of the financial markets is that sharp moves bring out the bargain-hunters. In this respect, the optimists were helped by a fairly emollient acceptance speech from Mr Trump and the very vagueness of his policy proposals. As Fathom Consulting, an economic research group, put it, “Trump lite” could triumph over “Donald Dark”.

Perhaps the more extreme measures on trade proposed by Mr Trump will be blocked by his colleagues or by Congress whereas his plans for tax cuts will be approved, goes the reasoning. This will act as a stimulus for the economy. And a proposed change in the tax rules on foreign profits may cause companies to repatriate cash, giving a short-term boost to the dollar. Shares in health-care firms and coal producers are also seen as beneficiaries of a Trump victory. All this allowed shares on Wall Street to climb on November 9th; that in turn allowed European (and, the next day, Asian) equity markets to recoup their losses.

A focus on Mr Trump’s policy agenda also caused a change of heart in the Treasury-bond market. The prospects of bigger deficits and (possibly) higher inflation under Mr Trump drove yields higher than they were when the polls closed.

This choppiness reflects the confusion of investors who are struggling to cope with the surprise. Similarly, the equity and bond markets were volatile after the Brexit vote before settling down; the one consistent theme was the decline in the pound.

Perhaps the safest bet this time is that volatility, as measured by the VIX index (see chart), will pick up in the aftermath of the vote, at least until the direction of the new administration becomes clear.

A lot may depend on the early actions, rather than rhetoric, of the president-elect. Investors will be looking to see some respected and experienced cabinet appointees. They will also be hoping that Mr Trump’s hostile comments about Janet Yellen, the head of the Federal Reserve, do not lead to a change of leadership, or a shift to a more hawkish policy, at the central bank.

The irony is palpable. Markets are essentially being reassured by the idea that Mr Trump will not enact many of the policies that got him elected, but will instead focus on a traditional Republican approach of tax cuts for business and the rich. In time, that will make voters more angry and they will look for someone who really will implement the policies they want—and that person could just as easily be on the left as on the right.

Indeed, there is plenty of potential risk ahead. It is not just America that is grappling with the issues of slow growth and immigration. Over the next 12 months, Europe faces a constitutional referendum in Italy, a general election in Germany and a presidential election in France. All three could lead to upsets: the departure of Matteo Renzi or Angela Merkel, or even the election of Marine Le Pen. A rapid change of leadership could plunge the EU back into crisis.

Populism is on the march, and this seems likely to lead to less international co-operation and more restrictions on the free movement of goods and services, capital and people.

Such policies may have electoral appeal in the short term; but they are a negative-sum game in aggregate, as the 1930s demonstrated.

Investors may thus face a no-win situation. Unless the share of GDP in the developed world shifts in favour of labour and away from capital, populists will be elected. And if populists are elected, and enact the protectionist and anti-immigration policies voters appear to want, not only might capital’s share of GDP fall, but GDP might grow even more slowly. The reverberations from Mr Trump’s triumph will echo far longer than over the first few trading sessions.