Published as of: November 6, 2024, 4:40 p.m. ET
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(Wednesday market close) Major indexes rocketed to record highs, but Treasury yields also soared after Donald Trump's decisive victory as investors contemplated the potential impact of Republican policies. Stocks flexed their muscles on ideas that the new administration could help businesses and the economy grow more quickly.
Almost every sector joined the upward move, barring defensive areas that wilted under pressure from rising yields. Stocks that performed best tended to be ones closely tied to potential U.S. economic power that could potentially be unleashed with less regulation and a more protectionist stance. These included big banks, steel and automakers, railroads, heavy equipment makers, and travel firms like air and cruise lines.
Post-election enthusiasm didn't extend to fixed income. Yields, which move the opposite direction of Treasury notes, set new four-month highs on worries that Trump's tariff and tax agenda could spark inflation. The U.S. dollar also ascended amid ideas that interest rates could remain higher for longer if Trump's policies get enacted and the Federal Reserve decides to play defense.
"The move up is likely due to the potential impact of tax cuts, tariffs, and immigration policy, all of which may be inflationary," said the Schwab Center for Financial Research in a note this morning, referring to the yield rally. "The combination of potentially higher inflation with rising deficits has pulled up Treasury yields and has shifted market expectations for the path of Fed policy."
The Fed's meeting began today and ends with a rate decision tomorrow at 2 p.m. ET. The market overwhelmingly expects a 25-basis-point cut following September's 50-basis-point trim, but the question really is what's next. A hawkish tone in either the post-meeting statement or Fed Chairman Jerome Powell's press conference wouldn't necessarily be surprising, and futures trading today retreated slightly from the concept of a second 25-basis-point rate cut in December.
Here's where the major benchmarks ended:
- The S&P 500® index (SPX) rose 146.28 points (2.53%) to 5,929.04; the Dow Jones Industrial Average® ($DJI) added 1,508.05 points (3.57%) to 43,729.93; and the Nasdaq Composite® ($COMP) gained 544.29 points (2.95%) to 18,983.47—a new closing high.
- The 10-year Treasury note yield (TNX) surged 14 basis points to 4.43%, its highest level since July.
- The Cboe Volatility Index® (VIX) fell sharply to 16.3 as election-related uncertainty diminished.
Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.
" id="body_disclosure--media_disclosure--139581" >Read all our market commentary on our Insights & Education page, and you can follow us at @SchwabResearch.
Stocks on the move
All three major U.S. indexes set new record highs today, and the $DJI had its best day since 2022. Small caps, which have languished versus their larger cousins all year, broke out with a nearly 6% gain for the Russell 2000® Index (RUT). That wasn't enough to return to its all-time high posted three years ago, but it's knocking on the door.
One school of thought suggests smaller firms might benefit from protectionist economic policies and a possible growing appetite for mergers and acquisitions with Republicans in charge.
Rising yields hurt homebuilder and home renovation shares, while health care barely rose amid worries over Trump's policy plans.
The following companies had stock price moves driven by analyst ratings, quarterly earnings, or other news:
- Tesla (TSLA) jumped 14.75% on ideas that its CEO Elon Musk and the company might benefit from Musk's close association with Trump. However, European automaker stocks fell on worries about U.S. import tariffs climbing.
- Large U.S. banks, JPMorgan Chase (JPM) up 11.54%, Wells Fargo (WFC) up 13.11%, Goldman Sachs (GS) up 13.10%, Bank of America (BAC) up 8.43%, and Morgan Stanley (MS) up 11.61%, rose today on hopes Trump's policies might lead to more mergers and acquisitions and tone down the regulatory environment. The S&P 500 Financial Select Sector Index (IXM) climbed more than 5% today to lead all sectors.
- Chevron (CVX) accelerated 2.81%, ExxonMobil (XOM) rose 1.71%, and Halliburton (HAL) surged 6.91% on ideas that Republican control in Washington could mean more support for fossil fuel extraction.
- Clean energy stocks typically favored by Democrats in Washington suffered sharp losses, with Enphase Energy (ENPH) down almost 17% and First Solar (FSLR) down more than 10%. Sunnova (NOVA) plunged nearly 52%.
- Cleveland-Cliffs (CLF) soared 20% and U.S. Steel (X) added more than 8%, helped by strong earnings for U.S. Steel and news that it continues to work toward closing its deal with Nippon Steel by year-end.
Qualcomm (QCOM) reports this afternoon following strong growth in the firm's smartphone processors business last time out. Back then, it delivered strong guidance. Arm Holdings (ARM), also today, saw shares dive the last time it reported as investors reacted to what analysts saw as conservative guidance from the chip architecture maker.
Lyft (LYFT) also reports after today's close following what analysts called disappointing results from competitor Uber (UBER). Gross bookings will likely be in focus.
Trump's tariff-driven policy plans gave the U.S. dollar a lift against other currencies. The greenback enjoyed its biggest one-day gain since June 2016. Currencies falling most against the dollar included the Mexican peso and the British sterling. The euro also lost ground and hit its lowest level versus the dollar since June.
A strong dollar can hurt large U.S. exporting firms by making their products more expensive overseas. Mega-cap tech and communication services firms have major exposure to foreign markets, as do health care and industrial firms. Shares of mega caps, including Microsoft (MSFT) and Nvidia (NVDA), gained today. But Apple (AAPL) didn't join them and lost its place as the U.S. company with the largest market capitalization to Nvidia this week.
Dollar strength also can hurt commodities, but crude oil rebounded today from early lows.
Other potential policy ramifications of Trump's win are things he discussed on the campaign trail, including a lower corporate tax rate, deregulation, and a broader role for the executive branch in monetary policy decision-making.
The only major outstanding election-related question is which party will control the House of Representatives. Republicans won the Senate back from Democrats and anticipate having at least 54 seats there. Republicans currently run the House.
"If Republicans can keep their House majority and create a unified government, they'd have the ability to push through many of Trump's policy priorities, though lawmakers on Capitol Hill will inevitably make changes to his campaign proposals," said Michael Townsend, managing director, legislative and regulatory affairs at Schwab. "A narrow win for the Democrats in the House, however, would complicate the president-elect's ability to pass his agenda."
For more on how the election might affect markets, check the latest election insights from Schwab's experts.
Additionally, it's important to keep election-related emotion out of your investing decisions. "Staying invested historically has been the best course of action," Townsend said.
Second billing for Fed
The Fed's words and body language coming out of the room tomorrow might overshadow its actual decision. The lack of projection materials, which are released quarterly, raises the profile of Chairman Jerome Powell's press conference. He may be asked to comment on Trump's proposed economic policies, though Powell generally steers clear of politics.
"We still expect a 25-basis-point rate cut tomorrow, but the fed funds futures market is now pricing in one less cut for this cycle than was expected compared to yesterday," the Schwab Center for Financial Research said. "The implied fed funds rate for next October is now around 3.85%, compared to 3% at the beginning of October. Based on the recent economic resilience and potential for higher inflation, we believe the terminal rate may be in the 4% area."
The terminal rate is the ultimate level rates are expected to be at when the Fed is done with its current cycle of cuts. The next set of Fed projections is due next month.
Early tomorrow, the Bank of England is likely to cut rates by 25 basis points as inflation continues to cool, said Michelle Gibley, director of international research at the Schwab Center for Financial Research.
Be ready early tomorrow for preliminary third-quarter productivity and unit labor costs. Analysts expect productivity to rise 2.3% from the prior quarter, with unit labor costs expected to rise 0.5%, Briefing.com said.
Initial weekly jobless claims due before tomorrow's open are seen at 222,000, up from 216,000 the prior week, Briefing.com said.
As of late today, traders see 97% chances rates will fall 25 basis points at the conclusion of the Federal Open Market Committee (FOMC) meeting Thursday and a 3% chance of no move, based on the CME FedWatch Tool. Chances of a follow-up 25-basis-point cut next month fell to 73% today from 77% yesterday, and at one point, fell to 66%.
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