Wall Street Driven by Trump’s Pro-Business Policies

Major US indices extended recent gains to fresh record highs during a light Veterans Day Monday, 11 November, as investor confidence of a Donald Trump sweep victory raised market optimism. The S&P 500 and tech-heavy Nasdaq (NQ) rose by a marginal 0.1% each, while the Dow Jones (YM) increased by 0.7% amid easier regulation and increased business activity under Trump. 

Despite markets largely expecting the Federal Reserve to continue cutting interest rates in 2024, albeit with a falling probability, the US dollar (DX) also rose due to the increased prospect of higher inflation under the president-elect.

Meanwhile, Tesla (TSLA) continued to soar into the $1 trillion market cap cohort amid Elon Musk’s bid to support Donald Trump. Trump’s majority-owned Media & Technology Group (DJT) also performed on Monday, along with some crypto-sensitive stocks like Coinbase (COIN), MARA Holdings (MARA) and MicroStrategy (MSTR). This follows a notable Bitcoin rally to record highs, which extended to around the $90,000 barrier early Tuesday on the prospects of crypto-friendly legislation.

While major markets and sectors saw gains after Trump’s win on Monday, WTI (CL) declined by 3.3%. On the one hand, market participants were disappointed after China announced a debt-style stimulus that failed to meet expectations. On the other hand, Trump’s pro-drilling stance is expected to add oil supply to the markets when Chinese demand remains weak and could be further pressured by high tariffs.

Prospects of Easier Regulations Fuel Market Optimism

With Republicans three seats away from securing control of the House in a ‘sweep’ victory, financial and banking trading groups are eager for a rollback of regulatory measures aimed at reducing risk and costs while increasing capital, M&A activity and lending. Banks have been lobbying to curtail Basel III Endgame rules and hope the new administration will either start fresh or revamp current rules. 

The expectations of easier regulation under Trump have boosted Dow Jones constituents JPMorgan (JPM), Goldman Sachs (GS), American Express (AXP) and Visa (V), along with banking institutions Morgan Stanley (MS), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C), to name a few, as a “new era after 15 years of harsher regulation” is set to begin.

Meanwhile, Tesla has gained around 40% since the election as the electric vehicle (EV) maker will likely benefit from his close ties with Trump. Investors appear confident that the Musk-Trump alliance will be favourable for Tesla’s EVs even though the auto manufacturer sells a third of its EVs to China. Tesla has faced substantial pushback for its self-driving cars over the years, which is expected to cease.

Approaching the sealing of Trump’s sweep victory, it isn't only Trump's crypto-friendliness and pick of cryptocurrency advocate J.D. Vance for his vice president that boosted the digital currency and crypto-sensitive stocks. Trump has also pledged to get rid of crypto-adversary SEC head Garey Gensler. Although Gensler’s term ends in 2026, rumours suggest Trump eyes current Robinhood Markets compliance and chief legal, Dan Gallagher. Notably, Musk proposed the Department of Government Efficiency (DOGE), which is an obvious nod to the altcoin DOGE, to oversee government spending. The altcoin has surged around 150% since the election.

Bullish Outlook Despite Inflation Risks and Rising Yields

Wall Street circles suggest analysts expect the stock market to continue its bullish trend, posting fresh highs on the heels of Trump’s victory. Goldman Sachs expects Trump’s win in 2024 to lead the S&P 500 9% higher in the next year and EPS to top 11%. Though historically, the markets moved up following a presidential election, the S&P 500 has risen by an average of 7% since 1952. Nevertheless, past performance is not a guarantee of future results.

However, rising bond yields pose a substantial risk as Trump’s policies are considered inflationary, including tax hikes for the middle class, tax cuts,  larger deficits and potential high tariffs on China. The Yardeni Research Group’s report pointed to “bond vigilantes” for the drop in bond prices, suggesting increasing fears over the US deficit spending. Still, Goldman Sachs believes the rise in yields is primarily attributed to solid US economic data, which backs the rhetoric of higher stock prices. (Source: Goldman Sachs)

Despite rising uncertainty and risks around inflation and the Fed’s path forward, Ed Yardeni of the Yardeni Research Group raised his S&P 500 target for 2026 from 8,000 on October 18 to 10,000 over the weekend. Yardeni pointed to fast deregulation and productivity under Trump as the main catalysts for equity market profit margins. He added that de-escalating the Ukraine-Russia and Middle East wars will support “the animal spirits.”

In a contrarian’s move, Warren Buffet of Berkshire Hathaway (BRK.B) has slowly increased cash and equivalents holdings to a record $325 billion, most of it being in Treasury bills. Although the move appears to some as a warning call of an imminent crash, some money managers point to Buffett’s cautiousness around market extremes. Others say that Treasury bills currently return more than prospective returns on stocks, suggesting Buffett suspects little upside for the market and prefers the safety of T-bills or views Berkshire’s stock holdings way above their intrinsic value, shifting into cash.

Wrap Up

Under Trump, the financial and banking sectors in Dow Jones and beyond appear poised for benefits due to regulatory rollbacks expected to reduce risk and costs while increasing capital, mergers and acquisitions and lending activities. Major financial institutions have already seen a boost in market performance, and there is expectation of continued growth as a new era of easier regulations may begin. 

Optimism extended to broader market trends despite potential risks such as rising bond yields and inflationary pressures under Trump. Still, Goldman forecasts that the S&P 500 will exceed historical averages. Nonetheless, historical performance or analyst forecasts do not guarantee future results, and investors should still exercise caution.