Wall Street and Dollar Surge on Trump’s Win
Following Donald Trump’s victory in the U.S. presidential election, Wall Street stocks hit record highs on Wednesday, while the dollar saw its strongest rise since the Brexit referendum. Investors reacted quickly to Trump's pro-business policies, including potential trade tariffs and tax cuts, sparking a strong “Trump trade” rally across global markets. The dollar index, which measures the greenback against a basket of currencies, climbed 1.7%, marking its biggest single-day gain since 2016.
The U.S. currency appreciated sharply against major rivals, with the euro down 1.9% to $1.073 and the pound down 1.3% to $1.288. Meanwhile, the S&P 500 jumped 1.8%, and the Nasdaq Composite rose 2.1%, setting record highs. In contrast, European stocks fell as investors anticipated a challenging environment for the continent’s exporters.
Investors Embrace ‘Trump Trade’ Amid Expectations of Economic Boost
Trump’s anticipated tax cuts and regulatory easing are seen as positives for the U.S. economy, likely to drive inflation higher and potentially slow down the pace of future interest rate cuts. Francesco Pesole, a currency strategist at ING, commented, “The Trump trade’s back on,” with markets factoring in a potential Republican sweep in Congress, which would further support dollar strength.
The bullish sentiment led to a drop in Wall Street’s VIX volatility index, reaching its lowest level since September. According to Luca Paolini, chief strategist at Pictet Asset Management, “Stocks are rallying because investors dislike uncertainty more than any candidate.”
Treasury Yields Rise Amidst Optimistic Market Sentiment
The yield on the U.S. 10-year Treasury bond rose by 0.17 percentage points to 4.46%, its highest level since July, reflecting increased confidence in U.S. economic growth. Yields on the 30-year “long bond” surged to 4.68%, experiencing its biggest one-day rise in over a year.
Robert Dishner, senior portfolio manager at Neuberger Berman, noted that a renewed trade war could hurt European growth, potentially leading the European Central Bank (ECB) to diverge from the Federal Reserve’s policies to support the economy.
Mixed Reactions Across Commodities and Global Currencies
Commodities took a hit as the market priced in potential economic slowdowns due to tariffs. Copper prices dropped by 3.7% in London, reflecting concerns over global trade under a Trump administration. Francisco Blanch, commodities strategist at Bank of America, summarised the sentiment: “‘America First’ means commodities second.”
In currency markets, the Mexican peso fell 0.5% against the dollar to 20.22 pesos, reflecting concerns over Trump’s tariff plans. Meanwhile, the yen weakened by 1.7% to ¥154.22, boosting Japan’s export-oriented stocks, with the Topix rising 1.9%.
Hong Kong’s Hang Seng index dropped 2.2%, led by declines in mainland Chinese companies. The Chinese offshore yuan weakened by 1.3% against the dollar, while the Australian dollar, seen as a “China proxy” due to its trade exposure, fell 1% to $0.657.
Key Sectors and Companies Benefiting from Trump’s Win
Certain U.S. companies benefitted significantly from Trump’s win. Tesla’s shares jumped 12.8% on expectations that Elon Musk, a prominent Trump supporter, could benefit from a lighter regulatory environment. Musk has previously backed Trump’s policies, arguing they protect innovation and reduce “overregulation.”
The broader Russell 2000 index, which represents a diverse range of U.S. small-cap stocks, surged by 4.7% as investors predicted a faster-growing U.S. economy that could benefit more than just the tech sector.
Analysts also pointed to financial and defence stocks as likely winners under Trump’s administration. Samy Chaar, chief economist at Lombard Odier, predicted a “high-octane” U.S. economy in the coming year, driven by strong earnings growth and high profit margins across multiple sectors.
Future Implications of Trump’s Policies on Global Markets
While U.S. markets are currently optimistic, some experts urge caution. Andrew Pease, global head of investment strategy at Russell Investments, highlighted the potential risks of additional tariffs, which could renew trade tensions and affect global markets.
Overall, Trump’s victory has reinvigorated investor confidence in the U.S. economy and created a promising outlook for U.S. stocks. However, the longer-term impacts of trade policies remain uncertain, particularly for economies outside the U.S., where new tariffs may complicate trade relations and affect growth prospects.
Source: (FT.com)
