Elections bring a unique set of challenges and opportunities for investors, sparking significant shifts across stock and bond markets. With the latest election results, we extend congratulations to the new president and look forward to a period of market stability and economic policy clarity. The day after Election Day saw a surge in the U.S. stock market as investors anticipated potential economic and regulatory shifts under the new administration. Here, we analyze recent market activity and provide insights to help investors navigate the post-election period.
Post-Election Market Rally and Sector Performance
The U.S. stock market rallied significantly on Wednesday, reflecting increased investor optimism around the new administration’s policy implications. The S&P 500 jumped 2.2% in afternoon trading, on track to surpass its recent all-time high. The Dow Jones Industrial Average rose by 1,382 points, or 3.3%, while the Nasdaq composite gained 2.5%. Specific sectors and assets reacted to potential policy changes, with bank stocks, cryptocurrencies, and domestic companies in particular benefiting from expectations of lower taxes, lighter regulation, and a focus on U.S. businesses. However, certain sectors like renewable energy saw declines, as investors anticipated potential shifts in support under the new administration.
Stock Volatility vs. Bond Volatility
Stock and bond volatilities tend to behave differently around elections. Stock market volatility, as measured by the VIX Index, usually peaks before Election Day due to policy uncertainty, then subsides once the results are clear. Bond market volatility, tracked by the MOVE Index, also tends to rise pre-election but declines more gradually afterward. However, with today’s market shift, Treasury bond prices fell sharply, driving the yield on the 10-year Treasury up to 4.43% from 4.29%, indicating investor expectations of stronger economic growth and potential inflation.
S&P 500 Performance Post-Election: Incumbent vs. New Party
Historically, the S&P 500 has shown post-election gains regardless of the winning party. On average, the S&P 500 has risen by 4.8% between Election Day and Inauguration Day, reflecting investor confidence in future growth. However, the market often reacts differently depending on policy priorities, with today’s gains suggesting optimism about a pro-business and potentially inflationary environment. Investors are now recalibrating their portfolios to reflect these expectations, with sectors like financials and domestic-focused small caps leading the gains.
Clear Winners and Losers in Market Sectors
- Banks: Leading the market higher, financial stocks benefited from expectations of lighter regulation and increased loan activity. Major banks like JPMorgan Chase rose over 10%, with the sector as a whole showing the strongest gains among the S&P 500’s sectors.
- Cryptocurrencies: Following campaign pledges to make the U.S. a “crypto capital,” bitcoin hit an all-time high above $75,000, rising over 6% in value. Related stocks, including Coinbase, also saw significant jumps, with the platform’s shares climbing more than 26%.
- Tesla and Domestic EVs: Tesla surged 14.1%, buoyed by expectations that its large market share could position it favorably despite a potential reduction in industry subsidies. However, other EV makers like Rivian fell as investors anticipated a shift in federal support.
- Domestic-Focused Small Caps: The Russell 2000, an index of small-cap stocks with a U.S. focus, gained 5.2%—more than double the S&P 500’s gain. This reflects a “Buy America” sentiment, as Trump’s policies may favor businesses that rely less on international markets.
- Renewable Energy: Solar companies faced declines amid expectations for reduced support of green energy. Key players like First Solar fell over 10%, while Enphase Energy dropped 17%, reacting to the anticipated emphasis on fossil fuels.
Inflation and Interest Rate Expectations
Investors expect the new administration’s policies to influence inflation, especially with anticipated higher tariffs and domestic-focused labor policies. Tariff increases could add costs to consumer goods, which may further elevate inflation rates. Although market expectations for Federal Reserve rate cuts have been high, the outlook is now less certain, with potential inflation tempering expectations for future rate reductions.
Key Takeaways: Aligning Portfolios with Post-Election Trends
The post-election period offers opportunities for investors who recognize historical patterns and remain flexible to changing conditions. Here are some strategic considerations based on today’s movements:
- Evaluate Risk Tolerance: With reduced stock volatility relative to bonds, investors may consider rebalancing portfolios toward equities, especially in sectors poised for growth under the new administration.
- Leverage Broad Market Gains: The S&P 500’s post-election resilience underscores the value of index funds or ETFs tracking the S&P 500 for broad market exposure.
- Consider Domestic and Small-Cap Exposure: U.S.-focused small caps, which have shown strong performance post-election, may be an attractive option for growth-seeking investors.
- Prepare for Inflationary Pressures: The potential for higher tariffs and increased wages could contribute to inflation. Investors may look into assets that perform well during inflationary periods, such as commodities or Treasury Inflation-Protected Securities (TIPS).
Final Thoughts
While market outcomes remain uncertain, post-election trends offer insights for investors. By understanding these patterns and adjusting portfolios accordingly, investors can navigate the evolving landscape and potentially benefit from growth opportunities across sectors.
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Tony Gomes, Author, MBA
CEO and Founder
Advanced Wealth Management
Content Disclosure: The information here is general and educational. It is not a substitute for professional advice and does not constitute a recommendation. Forecasts and opinions are subject to change.
