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Stocks Surge and Bonds Fall as Trump Wins Election: Markets Wrap

2024.11.06

(Bloomberg) -- Donald Trump’s victory in the US presidential election unleashed a shockwave in global markets as traders prepared for dramatic policy changes under the new administration.

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S&P 500 futures climbed 2.2%, the dollar had its biggest gain since 2020 and Bitcoin spiked to a record. Tesla Inc., led by Trump’s biggest backer Elon Musk, surged 15% in premarket trading. US bonds tumbled on expectations of faster inflation, with 30-year yields jumping 20 basis points to 4.65%.

From London to Shanghai — investors around the world grappled with the far-reaching effects of a Trump presidency, which is expected to bring steep tariffs on imported products, worsen trade tensions with China and increase pressure on Europe to ramp up defense spending. The Mexican peso fell the most in three months and the euro was set for the biggest slide since 2016.

“We’ve been talking about this Trump trade for a while. The fairly aggressive market reaction shows that investors didn’t know what to put on, and now they know,” Marvin Loh, senior macro strategist at State Street Global Markets, told Bloomberg TV. “We’re going to unpack the winners and losers.”

Equities reflected expectations that Trump would loosen financial regulation, embrace crypto and support fossil fuel producers. JPMorgan Chase & Co. and Bank of America Corp. shares advanced in early trading. Tilray Brands Inc., a cannabis company, sank 10% after Florida voters rejected a ballot measure to legalize recreational marijuana.

Small-cap stocks were also big winners as the Republican party’s protectionist stance and tax cuts are expected to benefit domestically focused firms. Russell 2000 Index futures soared 6%, while contracts on the Nasdaq 100 lagged with a 1.7% gain.

JPMorgan Asset Management strategist Vincent Juvyns said he expects the US stock market rally to broaden from tech blue-chip stocks.

“Small and mid-cap companies are the economic backbone of the US economy,” said Charlotte Daughtrey, equity investment specialist at Federated Hermes. “There are strong tailwinds that are supportive for the next five to ten years.”

Traders will now focus on whether Republicans can complete a sweep of Congress. The party took control of the Senate while the race for the House remained too close to call.

The implementation of key Trump priorities such as large tax cuts could be more difficult if the House ended up being controlled by Democrats. A potential surge in borrowing costs and supply chain disruptions caused by tariffs also pose threats to company profits.

The small-cap “gains might not necessarily be sustainable,” said Julien Lafargue, chief market strategist at Barclays Private Bank. “Higher yields could also prove challenging to this group that relies on market access to fund themselves.”

Here’s What Wall Street Says:

We have a new investment regime most likely for the next four years or at least the next two years until the next midterm election. This means you can commit to some of those trades. The reason why small caps are rallying is because they are more sensitive to the republican majority and that is helping sentiment, domestic orientation and potential for lower tax.

There is potential for higher short-term volatility in bond markets in the aftermath of the election. We think this is particularly likely around US Treasuries as sentiment adjusts to the result.

Possible higher inflation may also cause yields for long-term bonds to rise higher than short-term bonds. This is sometimes seen as a signal for the start of a strong economic period but can also indicate a time of higher interest rates.

We see a continuation of the US equities rally. Our view has been that a number of investors are sitting on the sidelines and waiting for election uncertainty to be out of the way.

Assuming a clean election result, with Trump policies largely considered positive for the market, a growth picture that is doing fine and a Fed that is ready to cut rates, we see further upside in US equities. We also expect US equities to continue to outperform Europe and global indexes.

The race for the House of Representatives will determine whether campaign pledges can be fully implemented. The question of tariffs is key for global trade and the Fed’s easing prospects.

Investors should look past the election and focus on the fundamentals of what drives markets. The economy and earnings continue to be better than expected, most stocks are reasonably priced and the Fed is in an accommodative mode and is expected to cut interest rates again this week. There is an excellent backdrop for stocks right now.

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