(Bloomberg) — A risk-on frenzy enveloped financial assets early Wednesday as Donald Trump clinched the White House for a second term, decisively winning what had been seen as a neck-and-neck race against Vice President Kamala Harris.
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US stocks soared, with S&P 500 futures climbing more than 2% in premarket trading and riskier parts of the stock market such as small caps posting the biggest gains. The VIX Index “fear gauge” of stock-market volatility fell below 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 2020 and Bitcoin rallied to a new record, while US 10-year yields rose to a four-month high — all manifestations of the “Trump trade” seen as keying off of his platform of tax cuts and tariffs.
Trump was elected Tuesday following 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 to determine how forcefully Trump can push through his policy agenda.
The reaction across Wall Street echoed moves seen after Trump’s first presidential victory in 2016, 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.
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.”
Michael Kantrowitz, chief investment strategist at Piper Sandler & Co.:
“Equities love it, and I am not surprised that for the moment, they are ignoring the spike in interest rates, perhaps believing that deregulation and the potential for lower corporate taxes rates is a bigger deal.”
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.”
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.”
–With assistance from Alice Atkins and Naomi Tajitsu.
