November 7, 2024

In a stunning upside follow-through to Tuesday’s huge upside move, the Dow, S&P and Nasdaq all pushed to new all-time highs yesterday, as various parts of the market reacted to the final election results from the day before.

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The Dow skyrocketed by 1508 points to 43,729 with the exception of BA despite the strike being settled, HD, MCD and PG, all of which are considered consumer stocks.

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The S&P also blasted to a 146 point gain led by most of the large technology leaders with the exception of AAPL which faded out into the close, in addition to the large gains in financial issues. This was its best upside performance in two years.

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The Nasdaq also went crazy on the upside as well, as TSLA for the second day in a row exploded to the upside due to the close association of its owner to the new President plus BKNG doing extremely well also.

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And believe it or not, the Russell 2000 Index of small stocks actually did the best of all once again with a 132 point gain to 2392 on the strong performance of many financial issues.

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And how do you like the VIX, which got melted down to 16.27 on the monstrous upside explosion in stocks and despite what now seems to be the unfounded Middle Eastern fears of those who want to push it higher through the huge buying of bearish upside calls.

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Among the losers the market sees: the renewable-energy industry and potentially anyone worried about higher inflation.

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The market has historically tended to rise regardless of which party wins the White House, with Democrats scoring bigger average gains since 1945. But Republican control could mean big shifts in the winning and losing industries underneath the surface, and investors are adding to bets built earlier on what the higher tariffs, lower tax rates and lighter regulation that the new President’s favors will mean.

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So in a sense, the markets are scrambling to figure out what happens next, but for the time being, they are pricing in a higher growth and higher inflation outlook.

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Of course, how much change will be affected in his second term will likely depend on whether fellow Republicans win control of the House and that is still to be determined, and this could leave room for snaps back in some of Wednesday’s big knee-jerk movements.

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Nevertheless, the market is alternating between rather clear winners and losers following the President’s dramatic win. For instance:

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Bank stocks, Higher

Bank stocks led the market higher, in part on hopes that a stronger economy would mean more customers getting loans and paying them back with interest. They also rallied on hopes for lighter regulation from a Republican White House. JPM soared by 11.5%, and financial stocks had the biggest gain by far among the 11 sectors that make up the S&P. COF climbed 15%, and DFS jumped 20% for some of the market’s biggest gains on speculation their pending merger will more easily get federal clearance under the new administration.

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Crypto, Higher

The new President has pledged to make the country “the crypto capital” of the planet” and create a “strategic reserve” of bitcoin. The price of bitcoin hit an all-time high above $76,480, according to CoinDesk, and was recently just under $76,100. Companies in the crypto industry also jumped, including trading platform COIN’s 31% leap.

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Tesla, Higher

Musk has become a close ally of the new President, exhorting the former president’s run. While he may end up hurting the electric-vehicle industry broadly by limiting government subsidies, analysts say TSLA could gain somewhat of an advantage by already being such a big player in the industry. The stock added 15% while rival RIVN fell by%.

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DJT, slightly higher

The company behind the new President’s Truth Social platform rose 5% after jumping nearly 35% earlier in the day. It regularly trades more on his popularity rather than on prospects for its profits. Its rise came even after it filed unaudited financial documents with regulators on Tuesday saying it lost $19.2 million during the latest quarter and that its sales weakened from a year earlier. And once again, here is another example of foolish option buying as for instance the 100 -120 calls for this Friday show 20,000 volume with open interest of 35,000 all about to go out worthless and there will be many more relative to where the stock is at low 30’s.

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Private-prison operators, UP

There could be a push for tougher enforcement of the nation’s borders, which would mean more business for companies that work with U.S. Immigration and Customs Enforcement, or ICE. As a result, GEO Group, which runs ICE processing centers, surged 42%.

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Stocks of smaller companies, UP

The America-First policies could help companies that focus on customers within the United States, rather than big multinationals that could be hurt by increased tariffs and protectionism. The Russell 2000 index of smaller stocks, which are seen as more domestically focused than the big stocks in the S&P, jumped 5.8%. That was more than double the S&P’s gain.

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Treasury bond prices, DOWN

Investors see the new policies potentially leading to stronger economic growth, which helps push prices down for Treasurys and their yields up. Tax cuts could also further swell the U.S. government’s deficit, which would increase its borrowing needs and force yields even higher. The yield on the 10-year Treasury jumped to 4.43% from 4.29% late Tuesday, which is a major move for the bond market. It is up substantially from August, when it was below 4%.

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Inflation worries, UP

Investors also see the new policies likely adding to future inflation, particularly tariffs, which can add costs to U.S. households’ bills.

They keep openly telling people that he will increase tariffs not just on China but with every trade partner. This means 10% tariffs across all global partners. This is a big deal because this could add 1% to inflation. If you add 1% to next year’s inflation numbers, we should say bye to rate cuts.

A drop-off in immigration could also mean a crunch of available workers for employers, which could force companies to raise wages for workers faster and put more upward pressure on inflation.

Much of the run to records this year was built on expectations for coming cuts to interest rates by the Federal Reserve, now that inflation seems to be getting closer to its 2% target. Easier interest rates help boost the economy, but they can also give inflation more fuel.

The Fed will announce its latest decision on interest rates at 2pm today, where the expectation is still for a cut, according to data from CME Group. But traders are already paring back forecasts for how many cuts the Fed will provide through the middle of next year.

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Foreign currencies, DOWN against the dollar

There is the new proposal to sharply hike tariffs on imports from China, Mexico and other countries, raising worries about trade wars and disruptions to the global economy. A measure of the U.S. dollar’s value against several major currencies climbed 1.6%, which means that those other currencies fell.

The euro sank 1.5%, and the South Korean won fell 1.2% The Mexican peso, which has been falling against the dollar since the summer, in part on worries about a new administration, fell early in the day but then pared its loss.

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Renewable energy stocks, DOWN

The new President is a fan of fossil fuels, encouraging production of oil and natural gas. His win sent solar stocks sharply lower, including a 10% fall for FSLR and 17% slide for EHPH.

The only stock with a bigger loss in the S&P was SMCI, which said its sales for the latest quarter could come in below its prior forecast. As a result, it sank by 18%.

Earnings this week will see: yesterday - SMCI lower and DVN, CVS higher; today –LYFT, QCOM. UAA, WBD, APP higher and ABM, DJT, HSY lower; tonight - AKAM, EXPE; Friday – Baxter.

Economic reports will see: today - Federal Reserve interest rate cut at 2pm, weekly jobless claims rose a bit to 221,000; Friday – mid-month U. of Michigan Consumer Sentiment Survey.