Wall Street’s ‘Trump Trades’ Keep Powering Ahead: Markets Wrap

Stocks rose for a fifth straight session, Bitcoin topped $87,000 and the dollar hit a one-year high, with investors continuing to bet those trades will benefit from President-elect Donald Trump’s agenda.

Economically sensitive shares outperformed, with the Russell 2000 index of smaller firms climbing 1.5% to the highest since 2021. A closely watched gauge of banks rose 2.4%. Most big techs fell, with Nvidia Corp. down 1.6%. Tesla Inc. jumped 9%, extending a blistering surge.

An equal-weighted version of the S&P 500 — where the likes of Apple Inc. carry the same heft as Dollar Tree Inc. — beat the US benchmark. That gauge is less impacted by the largest companies — providing a glimpse of hope the rally will broaden out.

“No pre-election stock flips = big post-election trades,” said Savita Subramanian at Bank of America Corp. “Election years - especially big changes on status quo - have tended to see more ‘flips’ in active portfolios. So far this year, clients have been steadfast in positioning, leaving room for additional rotation through year-end from tech to banks/cyclicals, green to brown commodity exposure etc.”

With the election and another rate cut in the rear-view mirror, the question is whether bulls can keep pushing the market to new highs, according to Chris Larkin at E*Trade from Morgan Stanley. 

“Aside from any potential profit-taking after such a strong surge, this week’s inflation data may determine whether the market pads its gains,” Larkin said.

US inflation probably moved sideways at best in October, highlighting the uneven path of easing price pressures in the home stretch toward the Fed’s target. The core consumer price index due on Wednesday, which excludes food and energy, likely rose at the same pace on both a monthly and annual basis compared to September’s readings.

The S&P 500 rose 0.1%, topping 6,000 and notching its 51st record this year. The Nasdaq 100 was little changed. The Dow Jones Industrial Average gained 0.7%.

Treasury futures were mildly lower as the cash market was closed due to a US holiday. The Bloomberg Dollar Spot Index added 0.5%. Oil sank as a soft outlook for demand in China continued to plague the market.

The stock market could rally stronger into the end of the year following Trump’s presidential election victory than it did when he won the US presidency eight years ago, according to JPMorgan Chase & Co.’s trading desk.

“I expect 2024 returns to be larger than 2016,” Andrew Tyler, the bank’s head of US market intelligence, wrote in a note to clients Monday. A big advantage for the S&P 500 is weakness outside the US, with China, the UK, EU, Canada and Mexico all experiencing softer growth than they did back then.

The “animal spirits” being set loose by the economic policies of President-elect Trump will send the S&P 500 to 10,000 by the end of the decade, according to veteran strategist Ed Yardeni. 

His uber-bullish prediction, which would represent a 66% surge by 2030, is another sign that Wall Street is growing increasingly optimistic about stock markets in the wake of the US election. Yardeni lifted year-end targets to 6,100 for 2024, 7,000 for 2025 and 8,000 for 2026. 

“Stock investors are also thrilled by the regime change to a more pro-business administration promoting tax cuts and deregulation,” he wrote in a note on Monday.

US equities look a bit stretched from a valuation, positioning and sentiment perspective, according to Lori Calvasina at RBC Capital Markets.

She says valuations have not yet peaked on either the S&P 500 nor the Russell 2000 index, but notes there’s far less room to expand going forward.

The sustainability of the stock rally following the US election win will depend on the behavior of the bond market, according to JPMorgan Chase & Co. strategists led by Mislav Matejka. Yields approaching 5% could prove trickier for risk assets to digest, they said.

Corporate earnings are set to become one of the biggest drivers of US stocks as investor focus returns to economic growth following the election.

With the third-quarter reporting season in its final stage, S&P 500 companies have posted an 8.4% increase in profits — double the expected increase, according to data compiled by Bloomberg Intelligence. Wall Street is even more optimistic for next year, as analysts expect earnings to jump 13% in the biggest increase since 2021, according to BI.

• Cigna Group said it won’t pursue a combination with rival insurer Humana Inc. after reports the two companies had renewed discussions of a deal.

• AbbVie Inc. tumbled after two mid-stage trials of its drug to treat schizophrenia failed to meet their primary goal, a blow to the company’s $8.7 billion acquisition of Cerevel Therapeutics earlier this year.

• MicroStrategy Inc. bought about 27,200 Bitcoin for around $2.03 billion, the largest purchase by the crypto hedge-fund proxy since just after it began acquiring the digital-asset more than four years ago.

• Germany CPI, ZEW survey, Tuesday

• Fed speakers include Christopher Waller, Patrick Harker and Neel Kashkari, Tuesday

• Fed issues survey of senior bank loan officers, Tuesday

• Eurozone industrial production, Wednesday

• US CPI, Wednesday

• Fed speakers include Jeffrey Schmid, Lorie Logan, Neel Kashkari and Alberto Musalem, Wednesday

• Eurozone GDP, Thursday

• US PPI, jobless claims, Thursday

• Walt Disney earnings, Thursday

• Fed speakers include Jerome Powell, John Williams and Adriana Kugler, Thursday

• China retail sales, industrial production, Friday

• US retail sales, Empire manufacturing, industrial production, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.1% as of 4 p.m. New York time

• The Nasdaq 100 was little changed

• The Dow Jones Industrial Average rose 0.7%

• The MSCI World Index rose 0.1%

• Bloomberg Magnificent 7 Total Return Index rose 1%

• The Russell 2000 Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.6% to $1.0656

• The British pound fell 0.4% to $1.2867

• The Japanese yen fell 0.7% to 153.65 per dollar

Cryptocurrencies

• Bitcoin rose 8.9% to $87,068.54

• Ether rose 5.9% to $3,359.19

Bonds

• Germany’s 10-year yield declined four basis points to 2.33%

• Britain’s 10-year yield declined one basis point to 4.43%

Commodities

• West Texas Intermediate crude fell 3% to $68.24 a barrel

• Spot gold fell 2.3% to $2,622.62 an ounce