Today’s stock market reaction
The stock market reaction to the Trump victory has also been unambiguous. As Trump appeared the probable winner in recent weeks, the S&P 500 has generally drifted up. Now that the results are in, stocks are (with some exceptions) seeing additional momentum.
As of mid-afternoon trading today, the S&P 500 and the Nasdaq Composite Index are up well over 2%. We are seeing notable strength as well in (more economically sensitive) small cap stocks with the Russell 2000 Index rising over 5%.
The sectors within the S&P 500 delivering the largest upside are Financials (+6%), Energy (+4%) and Industrials (+4%).
Not all stocks are moving up. Stocks in defensive and interest rate sensitive sectors are seeing some weakness as long-term Treasury yields are rising in response to a growthier outlook for the economy.
Real Estate (-3%), Utilities (-2%) and Consumer Staples (-1%) are the weakest sectors within the S&P 500. Many investors are likely rotating capital from these more defensive sector towards sectors that will benefit more from a growth perspective.
Other indicators
Anticipation of Trump’s pro-growth policy agenda is leading to some upward drift in long-term bond yields. The 10-year Treasury now stands around 4.4%.
Given Trump’s intention to reduce taxes and regulatory burdens, it is likely that the Federal Reserve will be under less pressure to prop up the economy with rate cuts going forward.
We have noticed certain financial media sources placing a great deal of emphasis on the mild back-up in bond yields we have been seeing. It is worth noting that 10-year yields are still meaningfully lower than levels reached earlier in the year.
Bitcoin has surged with the election results and established a new all-time high. Trump has been explicit is his support for Bitcoin and other digital assets, whereas the Democrats have been lukewarm or negative. At approximately $75,000, Bitcoin has risen about 7% over the past 24 hours.
Gold is trading off almost 3% as the U.S. dollar strengthens. The Dollar Index, which represent the U.S. dollar relative to a basket of other currencies, has appreciated approximately 1.5% as capital flows into U.S. stocks.
The mild retreat in the gold price may also reflect the disappearance of a geopolitical risk factor. This election did not turn into a messy (and potentially violent) contested situation.
A new “golden age”
In his victory speech last night, Donald Trump committed himself to a new “golden age” of peace and prosperity and to unite the country through “success.” JD Vance concluded his brief remarks with a commitment to helping Trump lead an “economic comeback.”
Trump’s election, along with Republican control of Congress, eliminates critical risks that were facing stock market investors. Taxes on capital gains and corporate income will likely not be raised and may be reduced. This point alone justifies immediate upside in stock prices.
From a regulatory and industrial policy perspective, we anticipate a much more positive attitude towards the energy sector and related investments in energy infrastructure, which will ripple across the industrial economy. Through tariffs and other mechanisms, we expect the Trump administration to create a stronger environment for domestic manufacturing.
Technology stocks are also rallying today. Trump chose a venture capitalist as his running mate. Elon Musk has emerged as a key player within his team. The Trump team is enthusiastically committed to positioning the United States for dominance in artificial intelligence, fintech and other emerging growth industries.
Regardless of their political beliefs, investors in U.S. stocks should feel encouraged today about the long-term outlook. This is a moment for rational optimism.
