Stocks hit all-time highs, bond yields jumped and the dollar was set for its best day since 2020, with investors mapping out Donald Trump's return to the White House and what his policies will mean for markets.
The S&P 500 climbed 2.4%, heading toward its 48th record this year, on bets the newly elected president will enact pro-growth policies that will boost Corporate America.
A gauge of small caps rallied 5% amid speculation they will benefit from Trump's protectionist stance, while wagers on lower taxes and reduced regulation lifted banks. Insurers focused on the Medicare market jumped on expectations the government will pay higher rates to companies that provide private versions of the U.S. health program for seniors.
Trump Media & Technology Group Corp. gained 6%.
Wall Street's "fear gauge" — the VIX — tumbled the most since August to around 16. Trading on stocks spiked, with the S&P 500 volume 96% above the average of the past month.
The Dow Jones Transportation Average jumped to a fresh high after a three-year drought of records, finally confirming the strength of its industrial counterpart. The breakout is a bullish sign to followers of an investing framework known as Dow Theory that says synchronized gains in both gauges portend better times ahead for the broad market.
"For now, investor sentiment is pro-growth, pro-deregulation, and pro-markets," said David Bahnsen, chief investment officer at The Bahnsen Group. "There is also an assumption that M&A activity will pickup and that more tax cuts are coming or the existing ones will be extended. This creates a strong backdrop for stocks."
Treasury yields climbed across the curve, with the move led by longer-term bonds as traders slashed wagers on the scope of rate cuts by the Federal Reserve. Investors have doubled down on bets for policies such as tax cuts and tariffs that could trigger price pressures.
The moves also signal worries that Trump's proposals will fuel the budget deficit and spur higher bond supply.
A dollar gauge rallied 1.3%, with the yen leading losses in major currencies and the euro heading for its worst day in over four years. The Mexican peso pared its drop to 0.7%.
Bitcoin, viewed by many as a so-called Trump trade after he embraced digital assets during his campaign, hit a record high.
Commodities came under pressure, with gold and copper tumbling. Oil wavered.
Market Certainty
"The biggest takeaway from last night is that we received certainty that the market craves," said Ryan Grabinski at Strategas. "This will allow both business and consumer confidence to improve. Attention now should shift to the Fed meeting tomorrow. The 10-year is approaching the 4.5% level, that's the level risk assets ran into some trouble in the last 24 months."
The S&P 500 topped 5,900. The Nasdaq 100 added 2.2%. The Dow Jones Industrial Average climbed 3.3%. A gauge of the "Magnificent Seven" megacaps hit a fresh all-time high, led by a 14% surge in Tesla Inc.
Treasury 10-year yields advanced 16 basis points to 4.44%. The Markit CDX North American High Yield Index, which rises as perceived credit risk declines, briefly reached its highest level since January 2022.
With many investors braced for a prolonged period of uncertainty, simply gaining some clarity on the outcome is providing a sigh of relief, according to Keith Lerner at Truist. He says the market currently appears more focused on the positive aspects of Trump's agenda with less emphasis on the potential of tariffs and wider policy outcomes.
"Markets are pricing in most of the positives today, though the backdrop is complex, and rates, deficit concerns, the potential for fewer Fed rate cuts, and tariffs could eventually provide a counterbalance to today's upside price shock, he noted.
"Still, the weight of the evidence in our work indicates the bull market still has some longevity left, and we are sticking with the primary market uptrend," Lerner said.
At Macquarie, Thierry Wizman says traders have to be mindful about pushing the "yield story much further."
"If there's a surprise coming from Trump in the next few months (at least relative to hyped-up expectations), it will be about fiscal restraint — rather than fiscal irresponsibility. When the market realizes this, long-term UST yields could stabilize or decline."
What's Next for the Fed?
To Mark Haefele at UBS Global Wealth Management, the bond selloff has gone too far. He expects the Fed to stay on a path toward lower rates.
Fed officials are widely expected to lower their benchmark interest rate on Thursday by a quarter percentage point, a move that will come on the heels of a half-point cut in September.
