Stocks, Dollar and Yields Rise on Early Trump Lead: Markets Wrap

In contrast to Tuesday’s relatively calm session, Wall Street saw the potential for outsized moves almost regardless of the election’s outcome. Goldman Sachs Group Inc.’s trading desk said a Republican sweep may push the S&P 500 up by 3%, while a decline of the same size is possible should the Democrats win both the presidency and Congress. Moves would be half as much in the event of a divided government. Andrew Tyler at JPMorgan Securities said anything other than a Democratic sweep is likely to cause stocks to rise.

A Morgan Stanley note says risk-taking appetite may dip in the event of a Republican sweep as fiscal concerns fuel yields, but if bond markets take it in their stride the likes of growth-sensitive cyclical stocks would rise. Meanwhile, it sees renewable-energy firms and tariff-exposed consumer stocks rallying under a scenario in which Harris emerges the victor with a divided Congress, while a corresponding fall in yields would benefit housing-sensitive sectors.

Here’s What Wall Street Says:

Vigilantes are in full control. Panic is starting to set in, the coiling we expected is happening.

The market is pricing in more of Trump sweep now. The election is so close and driven by seven battleground states and none of those states have been called, that it feels as if the market is getting ahead of itself. But through the night, if it looks like Trump is outperforming, I think the move makes sense.

Dollar strength on the back of Trump odds improving in the early vote count is really hitting the Mexican peso, euro and yen.

Thin early Asia market liquidity and excitement from early results has amplified market moves of pricing in higher Trump odds.

Liquidity is still fairly thin, so things might have been exacerbated. We’re going to likely see continued wild swings through the night.

While some equity market volatility this week is inevitable, we do not expect the likeliest election outcomes to change our 12-month view on US equities. We expect the S&P 500 to rise to 6,600 by the end of 2025, driven by our expectations of benign US growth, lower interest rates, and the continued structural tailwind from AI. We expect these market drivers to remain in place regardless of who wins the US election.

Our 10-year yield forecast is 3.5% for June 2025. While we would expect yields to land somewhat higher than 3.5% under a Trump presidency, we would still anticipate positive returns for bonds over the coming 12 months. We do not expect the election result to shift the Fed from a path toward lower interest rates, and inflation remains on a downward trajectory.

We would expect the dollar to be somewhat stronger under Trump than Harris. More pro-growth policies, likely higher interest rates, and tariffs could all provide tailwinds for the dollar. Nonetheless, from today’s levels we would expect dollar depreciation regardless of the victor.

Irrespective of who wins the presidency, strong seasonals favor stocks from now to year-end, especially since a blue sweep is not in the cards. The most likely scenario is a mixed Washington, with leaders on both sides of the aisle needing to compromise to get things done. But a red sweep is still possible, which will help equities via pro-growth policies that likely incorporate aggressive onshoring ambitions, lower corporate taxes and a subdued regulatory landscape. In conclusion, however, bond yields are critical to watch, as investors and traders alike examine the inflationary, deficit and activity impacts of incoming policies.

Our historical playbook analysis reminds us that the S&P 500 tends to rise regardless of the balance of power in Washington. The strongest backdrops have tended to be a Democratic Presidency with a split or Republican Congress, and Republicans controlling the White House along with both chambers of Congress. In this context, we are more focused on longer-term opportunities that may open up from big gaps up or down around the event rather than short-term trades.

Regardless of the outcome, we believe the dollar will continue gaining.

If Trump wins, we expect USD and Treasury yields to rise as fiscal and trade policies under a Trump presidency would be inflationary. This could force the Fed to keep the policy rate restrictive for longer. However, Trump’s ambiguous currency policy is a USD headwind. If Harris wins, we expect USD and Treasury yields to have a kneejerk drop before staging a recovery that’s underpinned by the strong U.S. economy. Fiscal and trade policies under a Harris presidency are less likely to complicate the Fed’s price stability mandate and this has neutral implications for USD and Treasury yields.

We also may not know the makeup of Congress immediately Democrats have greater odds of winning a majority in the House of Representatives and Republicans are favored to win the Senate. As such, a divided Congress is the most likely scenario in our view. The political gridlock will make it hard for the next president to implement major fiscal changes.

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.

Our message to investors is to buy the chop and weakness that is being driven by election uncertainty and to remain fully invested as the market melts up in a Santa Claus rally, which we believe will last through year-end, pushing the S&P 500 to 6,150.

We see opportunities in tech, telecom, financials, industrials, utilities and energy.

We expect the Fed to lower rates by 25 basis points on Thursday, citing mixed economic data, and some weakening in the labor market. An accommodative Fed, slowing inflation and strong earnings is a classic “Goldilocks” economy and a great setup for stocks.

The election is finally here and emotions are running high. Elections matter, but let’s not forget that an economy that continues to surprise to the upside, record earnings, and a dovish Fed likely matters more for this bull market than who is in the White House.

Things are close, we know that. But we also know this year will be the thirteenth year in a row that saw the S&P 500 close higher amid a split Congress. Gridlock can be a good thing and should we see this once again, this could be what investors should be rooting for.

We view a Trump win, likely coming in a sweep scenario, as net positive for equities as it preserves favorable corporate tax treatment and builds on tax elements that expired. A Harris win, likely coming with a divided Congress, would be mildly negative due to fewer provisions of expiring tax legislation getting extended due to political gridlock.

While investors may react to every sound bite from the presidential candidates, creating elevated volatility through election day, the trajectory of the economy is the most important driver for equity markets over the long term. With the Fed cutting rates, that trajectory should accelerate from here.

First off, we would simply tell investors not to overreact.

We believe we are set for a strong end-of-year rally for many reasons, two of which are a possible chase scenario by the bears who finally have to capitulate, and performance anxiety from large money managers who may have missed the big moves in certain names.

We do believe the market prefers Trump for lower taxes and less regulation, and with Kamala, we likely see higher taxes and more regulation, but again with the balance of power, we may not see many of their proposed policies go into effect.

Key events this week:

• Eurozone HCOB Services PMI, PPI, Wednesday

• China trade, forex reserves, Thursday

• UK BOE rate decision, Thursday

• US Fed rate decision, Thursday

• US University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 1.1% as of 12:57 p.m. Tokyo time

• Nikkei 225 futures (OSE) rose 2.5%

• Japan’s Topix rose 2.4%

• Australia’s S&P/ASX 200 rose 0.6%

• Hong Kong’s Hang Seng fell 2.4%

• The Shanghai Composite rose 0.2%

• Euro Stoxx 50 futures were little changed

• E-Mini Russ 2000 Dec24 rose 2.4%

Currencies

• The Bloomberg Dollar Spot Index rose 1.5%

• The euro fell 1.8% to $1.0736

• The Japanese yen fell 1.6% to 154.01 per dollar

• The offshore yuan fell 1% to 7.1736 per dollar

• The Mexican peso fell 2.8% to 20.6827

Cryptocurrencies

• Bitcoin rose 7.4% to $74,263.7

• Ether rose 6.8% to $2,579.68

Bonds

Commodities

• West Texas Intermediate crude fell 0.9% to $71.37 a barrel

• Spot gold fell 0.4% to $2,734.13 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Vildana Hajric, Richard Henderson, Shikhar Balwani, Carter Johnson, Sydney Maki and Michael Mackenzie.

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