US stocks surge as 'Trump Trade' gains traction, with fossil fuels and banks leading early gains
Donald Trump's victory in the United States presidential election quickly affected financial markets, initiating what was described in the article as ‘Trump Trade’ plays across various assets.
Financial Post reported that US stocks surged after the election, with S&P futures rising by 2.3 percent.
The dollar recorded its biggest gain against major currencies since 2020, while US Treasury bonds tumbled, pushing benchmark yields up nearly 20 basis points.
Bitcoin, too, soared to a record high as investors moved quickly to recalibrate portfolios based on expectations of policies reminiscent of Trump’s first term.
These initial market shifts indicate investor sentiment that a second Trump administration will likely continue with similar policy directions: tax cuts, deregulation, and tariffs aimed at bolstering economic growth, corporate profits, and inflation.
On Wall Street, those backing Trump-oriented strategies felt vindicated.
Ed Al-Hussainy, a rates strategist at Columbia Threadneedle Investment Holdings Ltd., noted the strong returns, saying, “If you had the Trump trade on for the last six weeks, it’s been outstanding,” but warned that “these winning runs don’t last forever.”
The rising Treasury yields underscore investor concerns regarding the fiscal outlook. Trump’s policies are expected to increase the already substantial budget deficit and potentially trigger renewed inflationary pressures, which the US Federal Reserve had only recently begun to bring under control post-pandemic.
The 10-year breakeven rate, a key market measure of long-term inflation expectations, surged to its highest levels since April.
NatAlliance Securities LLC’s Andrew Brenner suggested this reflects Wall Street’s “bond vigilantes” pressuring Washington to control spending, commenting, “Vigilantes are in full control. Panic is starting to set in.”
A significant question for markets remains whether the Republicans will achieve a “trifecta”—control of the Senate, House, and White House—which could shape the policy environment further.
Luca Paolini, chief strategist at Pictet Asset Management Inc., cautioned against assuming policy certainty, saying, “Now the risk is to see if President Trump will be different from candidate Trump.”
Paolini added that with markets already at record highs and Trump’s agenda potentially disruptive for some sectors, the situation requires caution.
Leading into the election, fund managers maintained substantial stock holdings, positioning themselves for what could be the strongest election-year returns in nearly 90 years, with the S&P 500 up 23 percent in 2024.
Sectors anticipated to benefit under Trump—fossil-fuel energy, banks, pharmaceuticals, private prisons, and small-cap stocks—showed gains in early trading. Renewable energy stocks, however, declined amid predictions of a less favourable regulatory environment under Trump.
Stephen Dover, chief market strategist at Franklin Templeton Institute, commented, “The biggest winners will be sectors and industries welcoming a more business-friendly regulatory environment,” though he acknowledged that rising bond yields could eventually temper equity gains.
Tesla Inc., led by Trump supporter Elon Musk, rose in trading, as did Trump’s media company, which saw a jump of up to 62 percent.
In the currency markets, the dollar hit its strongest level in a year before paring back. While Trump has historically favoured a weaker dollar, investors believe his policies may stoke inflation, slow the Fed’s rate cuts, and ultimately strengthen the currency.
Tariffs he has supported are also expected to impact foreign economies more than the US, putting pressure on currencies like the Mexican peso, which fell the most in three months, and the Chinese yuan, which weakened significantly. The yen and euro also declined.
Trump’s pledge to expedite an end to the Russia-Ukraine conflict buoyed Ukraine’s dollar-denominated sovereign bonds.
Conversely, the dollar’s strength weighed on commodities, with oil, copper, and gold all declining. Soybeans saw their steepest monthly drop, amid fears of renewed trade tensions with China, its largest buyer.
Bitcoin emerged as one of the largest gainers, rising over eight percent, as Trump showed increasing support for digital assets.
Al-Hussainy anticipates a possible period of profit-taking on Trump-focused trades, with potential counterbalancing by investors seeking bargains in other areas, noting, “How much that balances out in the market is too early to say.”
The Financial Post observes that investors now face the task of determining whether these post-election trends will hold steady or prove short-lived.
