Trump, Red Sweep Enthusiasm Send Stocks to Record Highs: Nov. 6, 2024

Election results are sending stocks to the moon as investors celebrate GOP control of the White House and Senate. Additionally, Republicans are expected to walk away with a slim majority in the House, with some races still too close to call. Indeed, a red sweep has likely arrived in Washington, with market participants enthusiastic that a lighter regulatory regime, lower tax rates, a business-friendly environment and “Made in America” policies will drive sales and profitability. Equities are also getting a boost from the presidential election outcome being determined promptly, becausesome market participants believed that naming a winner could be a long process. But while equity investors are optimistic, bond traders are cautious, as rate watchers analyze the growth, inflationary and deficit impacts of incoming courses of action.

Trump’s Path to Victory

Former president Donald Trump’s path to victory among crucial battlegrounds started with North Carolina, the first swing state race to be called. He then captured the pivotal swing territories of Georgia and Pennsylvania, one of the “blue wall” states that also include Michigan and Wisconsin. The victory substantially narrowed Harris’ path to the 270 electoral votes needed to win the race. Trump then secured Wisconsin, with the state’s 10 electoral votes pushing him to a tally of 276. In winning Georgia, Pennsylvania and Wisconsin, Trump flipped political turf that was won by President Biden in the 2020 race for the White House. As of early Wednesday, Trump’s electoral votes totaled 277 compared to the 224 secured by Harris with Michigan, Arizona and Nevada still undecided.

Red Sweep Almost Certain

Republicans captured a 52-seat majority in the Senate despite votes in six races still being counted. The party was able to dislodge Democratic incumbents in Ohio and Montana. The battle for House control, however, remains undecided, but Republicans have a much wider path to holding onto their majority, with IBKR Forecast Trader contracts pointing to a 90% likelihood that the GOP will succeed. As of Wednesday morning, Republicans had won 199 seats and Democrats held only 181, while the results of 55 races were being finalized.

Election Results Spark Stock Gains

Stocks are soaring as investors breathe a sigh of relief following election day. All major stateside benchmarks are up sharply with the Russell 2000, Dow Jones Industrial, Nasdaq 100 and S&P 500 indices up 4.6%, 3.1%, 1.9% and 1.8%. Sectoral breadth is positive with 7 out of 11 segments and led by financials, energy and industrials, which are higher by 4.9%, 3.8% and 2.9%. Real estate, utilities and consumer staples are lower by 3.1%, 1.8% and 1.4%, however. Treasurys are taking losses ahead of a $25 billion auction of 30-year bonds this afternoon, with the 2- and 10-year maturities changing hands at 4.28% and 4.45%, 10 and 18 basis points (bps) heavier on the session. Loftier yields are supporting the dollar, with its gauge up 159 bps as the greenback appreciates relative to most of its major counterparts, including the euro, pound sterling, franc, yen, yuan and Aussie and Canadian tenders. Commodities are mostly lower, with copper, silver and gold losing 4%, 3.9% and 2.5%, but crude oil and lumber are higher by 0.8% and 0.5%. WTI crude is trading at $72.47 per barrel despite stateside inventories increasing, as traders bump up economic growth expectations.

GOP to Power Year-End Rally

Strong seasonality trends and a GOP sweep are likely to add fuel to the fire for a year-end equity rally. November and December tend to be two of the most bullish months for stocks, and incoming policies from Washington are likely to boost earnings expectations for areas of the market that haven’t participated as much. Small caps, value, industrials, financials, energy, and defense contractors are poised to gain a boost from the new administration. Finally, however, there are risks on the horizon that could derail bullish momentum even though the odds are low at this juncture. Stretched valuations, elevated borrowing costs and tighter financial conditions could pose headwinds to this market if the 10-year approaches 5%. 

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