Markets close at record highs as Trump is reelected

New York (CNN) — US stocks rocketed higher Wednesday following a decisive and consequential victory for former President Donald Trump in Tuesday’s US presidential election.

The massive rally kicked off in premarket trading and continued through the morning and afternoon trading sessions. The Dow soared by 1,507 points, or 3.57%, to close at a new record high. It’s the first time the blue-chip index has gained more than 1,000 points in a single day since November 2022.

The S&P 500 and Nasdaq also reached new highs, with the S&P surging by 2.5% and the tech-heavy index closing 2.95% higher. The US dollar had its best day in two years and Treasury yields also rose.

Markets were mostly juiced by the fact that the election was decided relatively quickly. The election — and the widely held belief that Trump and his allies could contest the result in courts — has served as a cloud over the US economy and stock market in recent months. Markets, in particular, crave certainty, and the clear path forward will allow companies to adjust their business and hiring plans.

“There’s clarity: We’re not going to see another January 6th event. The market is breathing a huge sigh of relief on that,” said Michael Block, chief operating officer at AgentSmyth. “The mainstream consensus was that we weren’t going to know. And we know.”

But stocks may also be reacting to Trump’s victory, in particular. Trump flipped several swing states from President Joe Biden’s 2020 victory, and Republicans also took control of the Senate. Several key House races remain undecided. A so-called red wave could usher in an era of deregulation and other pro-business laws and policies that investors believe could benefit the stock market.

“There is this huge perception of business friendly, tax-friendly regime coming into place, especially with them winning the Senate,” said Block.

JPMorgan analysts predicted in a report ahead of Tuesday’s election result that under a “red wave,” stocks stood to gain through the end of 2024, but “the uncertainty around policy execution would become more prominent in 2025.”

However, markets and the economy have generally performed better under Democratic presidents — though stocks have boomed regardless of which party controls the White House. The S&P 500 has grown an average of 10% under Democrats and 6.7% under Republicans, according to Sam Stovall at CFRA Research. Gross domestic product, the broadest measure of the US economy, has averaged 3.9% under Democratic presidents, well ahead of the 2.4% under Republicans.

“This was a market coiled for an extreme reaction one way or the other,” said Art Hogan, chief market strategist at B Riley Wealth Management. “The market is saying: We just elected a business-friendly president. … The initial reaction to a Trump administration is met with enthusiasm that may be temporary.”

What Trump means for business and you

Trump has advocated for policies, including tax breaks and increased public spending, that could pose problems for the economy and significantly increase America’s budget deficit. That devalued US Treasury bonds, and so yields, which trade in the opposite direction of bond prices, surged.

The 10-year bond yield rose to 4.4%, undercutting the Federal Reserve’s efforts to lower interest rates to boost the economy. The Fed had been hiking rates over the past couple of years to combat a devastating inflation surge. But it began cutting rates in September and is widely expected to cut again Thursday at the conclusion of its two-day policy meeting.

“With higher tariffs, the Fed will not be in a position to cut rates even if the economy is slowing down — and that is a toxic mix for fixed income,” said Andrzej Skiba, head of BlueBay US Fixed Income at RBC Global Asset Management, noting that bonds could continue to struggle.

Although the fed funds rate can influence Treasury yields, consumer loans, including mortgage rates, auto loans and credit cards, are tied more closely to Treasury yields. So Trump’s victory, at least for now, appears to be keeping those rates somewhat higher.

Other so-called Trump trades, including shares of his social media stock, Trump Media & Technology Group, surged Wednesday. TMTG shares, which trade under the “DJT” symbol, soared by close to 24% before closing around 6% higher.

The US dollar also rose 1.7% against the euro and British pound to its highest level since July. The dollar could benefit from Trump’s radical plan to increase tariffs significantly, perhaps creating more demand for US goods at home — although most economists oppose the plan and many suggest that it won’t change consumer behavior.

Trump’s tariff plan could, however, boost inflation, and that could also undercut the Fed’s rate-cutting efforts.

Bitcoin also topped $76,000 Wednesday for the first time. Trump has warmed up to cryptocurrencies in recent months after broadly opposing them in his first term.

Bank stocks, which could benefit from deregulation, boomed: Citi rose 8.4%, Bank of America rose 8.4% and JPMorgan Chase rose 11.5%. Stocks in the detention and deportation space, including GEO Group and CoreCivic, surged 42% and 29%, respectively.

Tesla stock, meanwhile, closed 15% higher Wednesday. While the electric vehicle market could lose out during a Trump presidency, Tesla CEO Elon Musk could soon have an “open door” to the White House through his support for and friendship with Trump, wrote Nikos Tzabouras at multi-asset trading platform Tradu.

Global markets react

European stocks underperformed their US peers Wednesday. The Stoxx Europe 600 index, the benchmark for the region, was up 0.1%, paring earlier gains. Germany’s DAX fell by 0.3% and France’s CAC rose 0.1%, while London’s FTSE 100 was trading 0.5% higher on the day.

In Asia, the picture was mixed. Japan’s Nikkei 225 closed 2.6% higher, while Australia’s S&P ASX gained only 0.8%.

“A strong Trump presidency and a weak (Japanese) government should be a good combination for Japanese markets, particularly equities, as US pension money heading for Asia will continue to face challenges in investing in China,” said Neil Newman, head of strategy at Astris Advisory in Tokyo.

In China, the Shanghai Composite Index finished the session broadly flat, while Hong Kong’s Hang Seng index closed 2.2% lower.

“Chinese equities sold off overnight in expectation of more tariffs on US imports from China,” Daniel Murray, deputy chief investment officer and head of research at EFG Asset Management, said in a note.