US Stocks, Dollar Rally as Trump Nears Victory: Markets Wrap

By Investor Empires On Nov 6, 2024

(Bloomberg) — Growing presidential expectations for Donald Trump spread across global markets on Wednesday, with U.S. stock futures rising, Treasury yields jumping and the dollar rising by the most since March 2020.

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S&P 500 futures rose 1.8%, 10-year bond yields rose 14 basis points to a four-month high of 4.41%, and bitcoin rose to a record high — moves that reflect the GOP nominee is on the cusp Reclaim the White House. Trump announced his victory in a speech he delivered to his supporters, as the latest results showed that he won both Pennsylvania and Georgia, and Republicans took control of the US Senate.

The Bloomberg Dollar Spot Index rose 1.4%. The Mexican peso fell by 2.6%, while the Japanese yen and euro fell by at least 1.6%. Futures on the Russell 2000 rose 4.6%. Small businesses with local operations are typically seen as potential winners in a Republican victory, given the party’s protectionist stance. Trump Media & Technology Group Corp. rose. In trading on the Robinhood Markets Inc. platform. Which operates 24 hours a day.

Hong Kong stocks and the yuan fell as investors took into account increased trade tensions. Eastern European currencies posted some of the heaviest losses amid speculation that the region may have to increase defense spending.

A group of Wall Street investors bet that Trump’s stance on industrial policy, corporate tax cuts and tariffs would boost stocks and could fuel inflation – sending bond yields and the US dollar higher. Cryptocurrencies are seen to benefit from Trump’s eased regulation and public support for the digital currency.

“When I came in this morning, it was clear that many assets had decided that Trump had indeed won,” said Luke Hickmore, investment director at Aberdeen. “We may get to 5% on the US 10-year yield. Maybe even this year. People will realize that inflation will rise while putting heavy pressure on the fiscal side.

Wall Street saw the potential for huge moves regardless of the election outcome.

Goldman Sachs Group Inc.’s trading desk said. A Republican sweep could push the S&P 500 up 3%, while a decline of the same size is possible if Democrats win the presidency and Congress. The moves will be halved in the event of a divided government. Andrew Tyler of JPMorgan Securities said anything other than a Democratic sweep would likely send stocks higher.

Risk appetite may decline in the event of a Republican sweep as financial fears fuel yields, but if bond markets take that in their stride, the likes of growth-sensitive cyclical stocks will rise, a Morgan Stanley note says. At the same time, he sees renewable energy companies and consumer stocks exposed to tariffs rising under a scenario in which Harris emerges victorious with a divided Congress, while a corresponding decline in yields would benefit housing-sensitive sectors.

Here’s what Wall Street says:

If Trump is confirmed as the next president, we will see US stocks continue to rise. Our view was that a number of investors are sitting on the sidelines and waiting for the election uncertainty to pass.

Assuming a clean election outcome, with Trump’s policies seen as largely positive for the market, the growth picture going well, and the Fed poised to cut interest rates, we see further upside in US stocks. We also expect US stocks to continue to outperform European and global indices.

The notable and expected events if Trump wins are the weakness of the yen, the decline of Chinese stocks, and the superiority of Japanese stocks in emerging Asia.

If there is indeed a victory for Trump and a sweep for the Republicans, the combination of the strength of the dollar and stronger US Treasury bond yields negatively affects Asian assets, and the rise in the Standard & Poor’s index is considered a positive matter. Taiwan is in a good position in the short term.

Our analysis of the historical rules of the game reminds us that the S&P 500 tends to rise regardless of the balance of power in Washington.

The strongest backgrounds tended to be a Democratic presidency with a divided or Republican Congress, and Republican control of the White House along with both chambers of Congress. In this context, we focus more on long-term opportunities that may open up from large gaps up or down around the event rather than short-term trades.

Investors should look beyond the election and focus on the fundamentals of what moves the markets. The economy and earnings are still better than expected, most stocks are affordable 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.

First, we would simply tell investors not to overreact.

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

We believe the market favors Trump for lower taxes and less regulation, and with Kamala, we will 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.

Main events this week:

Eurozone HCOB Services PMI, Producer Price Index, Wednesday
Chinese trade, foreign exchange reserves, Thursday
Bank of England interest rate decision, Thursday
Interest rate decision from the US Federal Reserve, Thursday
Consumer confidence index from the University of Michigan, Friday

Some key movements in the markets:

Stocks

The Stoxx Europe 600 Index was up 1.2% as of 8:12 a.m. London time
S&P 500 futures rose 1.8%
Nasdaq 100 futures rose 1.7%.
Dow Jones Industrial Average futures rose 2%
MSCI Asia Pacific Stock Index fell 0.3%
MSCI Emerging Markets Index fell 0.7%
E-Mini Russ 2000 (Dec 24) up 4.6%

Currencies

The Bloomberg Dollar Spot Index rose 1.4%.
The euro fell 1.7 percent to $1.0739
The Japanese yen fell 1.6 percent to 154.07 yen to the dollar
The yuan in external transactions fell 1.1 percent to 7.1812 per dollar
The British pound fell 1.3 percent to $1.2870

Cryptocurrencies

Bitcoin rose six percent to $73,339.13
Ethereum rose 7.6% to $2,598.55

Bonds

The yield on the 10-year Treasury note rose 14 basis points to 4.41%.
The yield on 10-year German bonds fell by four basis points to 2.39%.
There was little change in the yield on British bonds for 10 years at 4.54%.

Goods

Brent crude fell 1.4 percent to $74.51 per barrel
Gold in spot transactions fell 0.6 percent to $2,727.27 per ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Cecil Goucher and Rita Nazareth.