Stock indices soar on Trump's decisive win
US stock index futures soared overnight as it became clear that Donald Trump was on course for a decisive win in the Presidential Election. It also looks as if Republicans could get a clean sweep by winning majorities in both the Senate and House of Representatives. The Dow was up well over 1,000 (2.9%) points for the first time since November 2022. Ahead of the vote, the major concern was that the result would be drawn out and disputed. This led to a jump in volatility and a sell-off across risk assets. As it happens, there has been no uncertainty. Donald Trump looked like the clear winner within a few hours of the polls closing. US stock indices had already posted a strongly positive session on Tuesday, making back most of the losses from the end of last week. It appeared that many traders were convinced that the polls were understating the positive momentum which showed up in Trump’s numbers over the last fortnight. But it’s worth pondering whether the strength of the stock market rally is due to Trump winning, or relief that there’s a clear and uncontested result. In truth, it’s probably a bit of both. The small-cap, domestically-focused Russell 2000 has outperformed, gaining over 6% this morning compared to 2% for the S&P 500. This is taken as a positive reaction to the Trump win, as he is seen as considerably more friendly to small US companies than Harris, due to his promise to cut taxes and tear up regulations. But Trump has also promised to increase tariffs in both scope and size. Again, this is probably more of a boost for domestically-focused corporations, although many economists argue that it will become a headwind for the US economy overall. In another sign that traders are reacting to a Trump win, Tesla soared 15% thanks to CEO Elon Musk’s endorsement and closeness to Trump. Banks have also reacted positively, as have US car manufacturers. The US dollar flew higher, while bond prices slumped. The yield on the key 10-year Treasury Note rose over 15 basis points to 4.44%, its highest level since early July. Policies announced by both Trump and Harris meant adding significantly to the US national debt, although Trump’s plans are potentially more damaging. This means a larger fiscal deficit and the risk that inflation takes off to the upside. Neither candidate made any mention of debt being on an unsustainable trajectory, so it looks like it will be down to the ‘bond vigilantes’ to curb fiscal excesses by driving up Treasury yields to painful levels. This may not be a major concern right now. But it is likely to be critical before the end of President Trump’s second term.
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