The financial markets exhaled on Wednesday morning in the form of strong rallies across most risk assets.
With Donald Trump declared the winner of the presidential election in a surprisingly lopsided victory over Kamala Harris, the SPDR Dow Jones Industrial Average ETF (DIA) and the SPDR S&P 500 ETF (SPY) opened with gains of more than 3% and more than 2%, respectively.
The tech-heavy Invesco QQQ Trust (QQQ) wasn’t far behind with an opening gain of 1.9%.
For financial advisors and market-watchers, the stock market rally boiled down to the kind of certainty Wall Street is known to appreciate.
“I wonder if some of the pop has to do with the decisiveness of the win, because so many Americans, and I think the stock market, were worried about a contested election,” said Tim Holland, chief investment officer at Orion.
In terms of any kind of “Trump trade,” Holland said, “it seems to be reflationary in nature.”
“This is good for the U.S. dollar and U.S. small cap stocks, and not so good for traditional fixed income and emerging markets,” he noted.
Paul Schatz, president of Heritage Capital, attributed the market’s reactionary rally to the prospects of a Republican sweep of the White House and both houses of Congress, which has not yet been determined.
“For short-term money, this is a good selling opportunity,” he said. “Stocks may rally for a day or three, but let’s not forget the Fed meets today and tomorrow.”
Tom Graff, chief investment officer at Facet, put the post-election rally in a longer-term context by considering such factors as the future of the tax cuts that Trump passed in 2017 and are scheduled to expire next year.
“A big part of why stocks are jumping is Wall Street hoping that those tax cuts remain in place or even taxes get cut further,” he said.
In regards to a Trump trade, Graff said, “the markets believe that Trump’s tariff plans will cause more inflation.”
“The TIPS market is pricing in about 0.15% higher inflation over the next couple of years based strictly on today’s move,” he added. “Rates are also moving because markets believe Trump will run a larger deficit, which means the government will have to sell more Treasury bonds and that pushes interest rates higher.”
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