‘The bond market … is headed very much in the wrong direction’: Louis Navellier
There was no stopping the “Trump trade” on Wednesday.
There was no selling the fact when it came to the Trump trade Wednesday, with U.S. stocks and bitcoin soaring to records, the dollar surging and Treasurys selling off sharply after Donald Trump secured a win in the presidential election.
In other words, assets that had rallied in anticipation of a Trump win kept on pushing higher, while those that had weakened accelerated their fall, signaling that a victory hadn’t been fully priced into the market. It also reflected relief that the election had produced a clear outcome.
“Markets hate uncertainty and now that the election is officially over, stocks are soaring today. Optimism over tax cuts, a still-dovish Fed, and a potentially better economy are part of it, but the reality is the economy has been quite solid all year, so this really isn’t anything new,” said Ryan Detrick, chief market strategist at Carson Group, in an email. “Back to your regularly scheduled bull market is how we see it.”
The question for investors is what happens once the postelection euphoria wears off. Here’s a look at how individual assets fared the day after the election.
Stocks
Much like after Trump’s 2016 victory, stocks soared. The Dow Jones Industrial Average rose more than 1,500 points, or 3.6%, for its biggest post–Election Day percentage gain since 1896, according to Dow Jones Market Data. The S&P 500 jumped 2.5%, its biggest gain on the day after an election on record, while the Nasdaq Composite rose 3%. All three indexes ended at records.
Republicans took majority control of the Senate, while it remained unclear if they would keep control of the House. A Trump victory, particularly if accompanied by a Republican sweep of Congress, was viewed in the run-up to the election as the most bullish scenario for U.S. stocks — with Trump calling for a further cut in the tax rate on corporate profits, after seeing it lowered to 21% from 35% in his first term, as well as personal tax cuts.
But analysts have warned that there may be less than meets the eye.
“The potential for extension of personal tax cuts under a Republican sweep are only marginally positive for the equity markets. Corporate tax cuts are much more significant, and while there have been promises to do more on this front, they come with unclear stipulations, including requirements that companies keep manufacturing operations in the U.S.,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management, in a note.
Stock sectors
The prospect of lighter regulation saw bank stocks soar. The Financial Select Sector SPDR ETF (XLF) jumped 6.2% to lead sector-tracking ETFs. Banks have been pushing all year to loosen capital requirements. They are also expected to benefit from potential tax cuts.
Energy, consumer-discretionary, industrial and tech stocks were also showing strong gains. Rate-sensitive sectors, including real estate and utilities, were left behind, as Treasury yields soared on concerns over potentially inflationary fiscal policies and the related prospect of fewer-than-previously-expected interest-rate cuts by the Federal Reserve.
“We expect cyclical leadership (financials, consumer discretionary, industrials) to continue in the coming months as the market anticipates stronger economic growth and better earnings delivery from this cohort than is currently priced,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments, in emailed remarks.
Small caps
Small-cap stocks were the big winners, with the Russell 2000 (RUT) up 5.8% and more domestic-oriented companies expected to benefit from stronger U.S. growth relative to the rest of the world, as well as lower taxes.
Small caps are also playing catch-up, with the Russell 2000 up just 17% this year versus a gain of nearly 24% for the S&P 500.
“Small caps have underperformed by a wide margin this year, and there is a catch-up opportunity headed into year-end,” said Keith Lerner, chief market strategist at Truist, in a note. “On a longer-term basis, the asset class remains in a tug of war between a resilient economy and higher interest rates.”
Treasurys
Of all the so-called Trump trades, a selloff in Treasurys was arguably the most pronounced in the run-up to the election. The yield on the 10-year Treasury note, which moves opposite to its price, soared from around 3.6% in mid-September to over 4.3% by early this month. On Wednesday it rose another 13.8 basis points to 4.425%, ending at its highest point since July 2 based on yields at 3 p.m. Eastern time.
Shares of the roughly $60 billion iShares 20+ Year Treasury Bond ETF (TLT), known as “TLT,” dropped 2.7% on Wednesday.
While neither Trump nor Vice President Kamala Harris offered fiscal plans that reassured budget mavens, the Republican nominee’s plans were seen as adding much more to a burgeoning U.S. debt pile.
The jump in yields didn’t appear to be worrying stock-market investors — at least for now. Analysts had said that a Trump victory was likely to produce a further rise that could be weathered in the near term, but which could serve to rattle stocks if it began to raise concerns about prospects for economic growth. A surge in yields, marking the return of so-called bond-market vigilantes, could also serve to undercut plans for tax cuts and other measures.
“The bond market … is headed very much in the wrong direction,” said Louis Navellier, founder of Navellier & Associates, in a note.
The jump in yields “will hit mortgage rates very hard,” he said. “Normally, moves like this would weigh very heavily on equities, pushing down price-to-earnings multiples. Not today.”
Bitcoin
Crypto bulls spent much of the summer arguing bitcoin was the ultimate proxy for a Trump victory. Trump had vowed to create a strategic bitcoin reserve, while the crypto industry leaned heavily into election-related spending. The consumer-advocacy group Public Citizen estimates that crypto corporations have spent $119 million on federal election contests in 2024, making the industrythe largest corporate political spenderthis cycle.
Bitcoin had surged 9.5% Wednesday at last check, trading in record territory above $76,000.
The dollar
Soaring Treasury yields alongside the prospects of punishing tariffs against trade partners have served to boost the U.S. dollar. The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was up 1.7% after trading at its highest since early July.
The Mexican peso and Chinese yuan fell sharply on the prospect of renewed trade tensions. Trump, however, has previously made clear he’s no fan of a strong dollar, which can undercut U.S. exporters and others doing business abroad.
“President Trump would like a weaker dollar, but he isn’t going to get his way if he wants to run accommodative fiscal policy at a time when real GDP growth has averaged almost 3% for the last 5 years (and despite how things looked a few months ago, isn’t showing much sign of slowing at all),” said Kit Juckes, macro strategist at Société Générale, in a Wednesday note. “Throw in trade tariffs at a time when the unemployment rate is only at 4.1%, and he won’t get a weaker dollar any more than Ronald Reagan was able to in the first half of the 1980s.”