WASHINGTON – U.S. stock futures soared to record highs Wednesday in response to Donald Trump’s win in the battle against Vice President Kamala Harris for president.
The Dow Jones Industrial Average rose 3.4%, or around 1,430 points, around 1:50pm EST, notching an intraday peak Wednesday afternoon in New York. Additionally, the Nasdaq composite picked up momentum and gained 2.6%, while the S&P 500 gained around 2.3% in afternoon trading. Most impressive was the small cap Russell 2000 climbing over 5% with no sign of falling yet, all according to Marketwatch.
“Interpretation is that markets are pricing a more pro-business attitude,” former IMF Research Department Deputy Director and current Brookings Senior Fellow Gian Maria Melesi-Ferretti said.
With Donald Trump’s return to the White House and a new Republican Senate Majority, investors and financial professionals are rallying around the so-called “Trump trade” in hopes for a less aggressive regulatory climate. Trump has repeatedly said tax cuts and tariffs are at the top of his economic agenda, likely causing investor flurry to position themselves aligning with his second term.
“All of these things would contribute to, in different ways, boost home estate demand, boost firm profitability, reduction in taxes for specific industries,” Melesi-Ferretti said.
Financial and bank stocks led the Dow Wednesday, with JPMorgan Chase (JPM) and Goldman Sachs (GS) topping the index.
Milesi-Ferreti said with “stock markets” prices looking so “generous,” it’s “healthier to take a long-term perspective.”
“With valuations being a large multiple of earnings, the possibility of downward corrections is clearly there based on historical patterns,” he said.
In other market moves, stocks in oil and solar-energy shares fell, with the Wilderhill Clean Energy Index dropping as much as 6.4%.
The Biden administration has taken ambitious climate action with the Inflation Reduction Act of August 2022, investing hundreds of billion dollars in implementing clean energy provisions.
Attitudes towards clean energy will likely shift under Trump’s presidency, who has long criticized climate policies as the “green new scam,” and has even indicated plans for specific tariffs which will affect the industry.
“That will lead me to expect an attitude which is less likely to discourage the production of fossil fuels,” Milesi-Ferretti.
Following the presidential election Tuesday, stock and bond markets are sure to see major moves with the 30 Year Treasury Bond Auction on Wednesday afternoon and the Federal Reserve decision on cutting interest rates Thursday. Under Trump, a stronger fiscal policy is expected, which may have risks for inflation rising.
This is apparent with bond yields climbing Wednesday, and the 30-Yield Treasury Bond climbing to 4.60%, its biggest daily climb in two years.
Milesi-Ferretti said that bond yields “still remained within the bounds.” Market sentiment reflected a “short run reaction” and the big problem still lies in “unpredictability,” he said.
“We’re going to have to see how markets react once specific legislations are passed or not passed,” he said.
