(Bloomberg) -- A risk-on frenzy enveloped financial assets Wednesday as Donald Trump clinched a second term as US president, decisively winning what had been seen as a neck-and-neck race against Vice President Kamala Harris.
US stocks rallied, with the S&P 500 Index soaring 2.1% around 12:30 p.m. in New York, and riskier parts of the equities market posting the biggest gains. The Russell 2000 Index, a benchmark for small-cap shares, jumped 4.9%. The VIX Index of stock-market volatility fell to around 16, declining from the elevated levels it touched in the days leading up to the vote.
Elsewhere, the dollar posted its biggest gain against major currencies since March 2020 and Bitcoin rallied to a record, while US 10-year yields rose to a four-month high. These are all manifestations of the “Trump trade” seen as keying off of his platform of tax cuts and tariffs.
Trump’s election followed a contentious US presidential race that kept traders on edge. His Republican party also gained control of the Senate, with the House of Representatives still in play, a variable that will help determine how forcefully Trump can push through his policy agenda.
The reaction across Wall Street echoed moves seen after Trump’s first presidential victory eight years ago, reflecting enthusiasm that potential tax cuts and deregulation will spur economic growth and profits. At the same time, some warned the sharp moves may also partly be a knee-jerk reaction to an election result that came through more clearly and quickly than expected. Others cautioned that the spike in US yields could ultimately pressure risk assets if sustained.
“It’s going to be a strong year for those good at trading headlines, and a difficult one for those not used to following Trump tweets,” said Jordan Rochester, head of macro strategy in EMEA at Mizuho. “We are still in the 2016 playbook, and we shouldn’t fade it.”
Fed Ahead
As if the election wasn’t enough, there’s this week’s Federal Reserve policy meeting. Officials are widely expected to deliver a quarter-point cut to their benchmark interest rate on Thursday, another potential catalyst for market moves.
Here’s how investors and market watchers are reacting to the election results and more:
Ryan Grabinski, director of investment strategy and quantitative research at Strategas Securities, LLC:
“The biggest takeaway from last night is that we received certainty that the market craves. This will allow both business and consumer confidence to improve. The early rally in the futures, especially small caps, seems overdone since interest rates are widely moving higher, not lower, and they are more sensitive to rates. Attention now should shift to the Fed meeting tomorrow. The 10-year is approaching the 4.5% level, thats the level risk assets ran into some trouble in the last 24 months.”
Michael Strobaek, global chief investment officer at Lombard Odier:
“We’re here with a landslide victory return of an ousted President and markets are loving it. Equities are solidly up and the dollar is stronger. Normally, when election results are clear, it is a good day — it’s called fear of missing out — and it may last for some time. But we should not forget we’re close to all-time highs in markets.”
Dave Lutz, equity sales trader and macro strategist at JonesTrading:
“The current moves in equities, bonds and other assets could partially reverse if the House goes Democrat, which remains to be seen. Ultimately, though, this has little effect on tomorrow’s FOMC outcomes, but certainly will curtail the doves in 2025. I will be watching to see if banks hold their rally, and the Invesco Solar ETF is a good barometer to see if the moves mitigate.”
Max Kettner, chief multi-asset strategist at HSBC Global Research:
“With the election of Donald Trump as president alongside Republican control of Congress, we remain underweight US Treasuries from a multi-asset strategy perspective as fiscal stimulus and tax cuts are expected to be on the way. This is likely to be initially positive for equities as we suspect equity markets may focus on the potential positives of such proposed policies for US businesses and consumers. Without a considerable and sustained rise in US Treasury yields, such optimism could be a tailwind for equities into year-end. If, on the other hand, 10-year US Treasury yields were to rise into what we call the danger zone, such gains may prove short lived.”
Craig Johnson, chief market tecnician at Piper Sandler & Co.:
“This is not necessarily the trade. What this is, is a general sense of relief by investors globally that this was not going to be a long, drawn-out election. The second thing is deregulation. Look what’s happening with brokerage and credit card companies. That’s the trade I think people are focusing on right now. Is it sustainable? Well, the Dow is making all-time new highs. The S&P 500 is making all-time new highs. And the Russell 2000 is closto making an all-time new high for the first time since 2021.”
Keith Buchanan, senior portfolio manager at GLOBALT Investments:
“Markets are reacting just as predicted with a resounding Trump win, with equities rallying, yields bouncing higher, and Bitcoin moving to new highs. As we’ve seen with the Fed announcements, the first reaction isn’t always the lasting one. So we want to see global markets settle over the next few days, but the direction is clear. Mr. Market assumes the second Trump presidency will foster a positive environment for stocks, the dollar, and interest rates.”
Kevin Gordon, senior investment strategist at Charles Schwab & Co.
“One thing that will be interesting to see after today will be if the surge in yields continues and when that starts to be an issue for stocks. If both stocks and yields continue to climb together, it will signal more of a vote of confidence on growth as opposed to worries over inflation. Even though small caps are ripping higher, they’ve been in an uptrend for the past year and are still attempting to catch up to their November 2021 high. Investors shouldn’t forget the higher burden small companies face when it comes to financing costs. It’s not as if that burden has suddenly vanished over night.’
Evelyne Gomez-Liechti, multi-asset strategist at Mizuho International:
“If we look at the 2016 playbook where we also got a sweep, it shows that we’re going to get a quick sell off in yields during the first 30 days and then the moves are probably going to be a bit choppier. Overall, we think that higher yields should be the theme into year-end. So even if we get some dip buyers when the 10-year yield moves toward the 4.50% plus area, we think that 10-year will probably end the year around 4.70% on the back especially on the fiscal story.”
Steve Sosnick, chief strategist at Interactive Brokers LLC:
“Stocks are enthusiastic because tax rates have a chance of being cut. Bonds don’t like that because that means there’s a higher likelihood of deficits and those deficits have to be financed by selling Treasury bonds. So, there is a bit of push and pull right now going on between stocks and bonds.”
--With assistance from Alice Atkins, Naomi Tajitsu, Greg Ritchie and Norah Mulinda.
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