Stock markets were broadly rising higher Wednesday amid certainty over Donald Trump’s victory in the United States’ presidential election, though experts warned there’s no guarantee a “Trump bump” will last.
U.S. stocks surged on the news Wednesday morning that Trump had claimed a second term.
The Dow Jones industrial average gained just over 1,500 points by markets’ close. The S&P 500 was 2.5 per cent higher on the day and the Canadian benchmark S&P/TSX composite index was up 228 points at 24,608.41.
Bond yields were also rising Wednesday, with the 10-year U.S. Treasury yield up more than 15 basis points and long-term Government of Canada bonds on an upswing as well.
The stock market charge was led by U.S. banks such as Goldman Sachs and JP Morgan Chase. Allan Small, senior investment adviser of his own financial group at iA Private Wealth, tells Global News the surge is tied to hopes the victorious Republican candidate will enact a deregulation agenda when he takes office.
Cryptocurrencies also enjoyed a boom — Trump had promised to make the U.S. the “crypto capital of the planet” during the campaign — that saw bitcoin rising to a new high on Wednesday.
Select stocks gave a varied performance based on their links to Trump.
Trump Media & Technology Group, majority-owned by Trump, was up about six per cent before the end of the day. Investors overlooked the company’s latest quarterly results that showed the Truth Social parent’s revenue was just US$1 million.
Ally Elon Musk’s Tesla surged 14.75 per cent in trading Wednesday, while Small points to Trump’s previous statements criticizing Meta CEO Mark Zuckerberg as contributing to that stock’s sag.
But Small says that stock markets would likely be reacting favourably regardless of whether it was Trump or Vice-President Kamala Harris, the Democratic nominee, who came out on top Wednesday morning. It’s the fact that there was a decisive winner at all, following weeks of warnings that it could be days before the election results are finalized, that gave a broad lift to the markets, he says.
“Markets, we know, like certainty. I think that is another big factor in why the markets have surged ahead,” Small says.
Will the 'Trump bump' last?
Josh Sheluk, portfolio manager and chief investment officer at Verecan Capital Management, tells Global News that the stock market’s jump so far is “very reactionary” and may be short-lived.
Sheluk recalls that, in the day after Trump first won the election in 2016, markets initially reacted with a broad sell-off before rebounding the next day to end somewhat higher.
“I wouldn’t be surprised to see something similar play out here where there’s been an initial knee-jerk reaction and then as people sober up a little bit and get off their high — or their low, or whatever it is — of Trump being elected, and things kind of moderate over the next few days, ” he says.
Small agrees that there’s no telling how long the current “Trump bump” in the markets will last, depending on whether investors opt to cash out on profits in the days ahead.
“I’m not so sure the honeymoon today will last many days,” he says.
Right now, markets are solely reacting to perceptions of the incoming administration’s “pro-growth agenda,” Small explains, and that could change in the days ahead as new commentary or information such as Thursday’s U.S. Federal Reserve rate decision come into focus.
The economic platform Trump ran on in this campaign was focused largely on America-first policies such as blanket tariffs that many economists warned could drive inflation higher globally.
TD Bank economists said in a note Wednesday that, with the new presidency confirmed, they’re reining in their forecast for how quickly the Fed will cut rates, arguing the American central bank will need to keep borrowing costs higher against the inflationary pressures of Trump’s proposals. TD now sees the Fed cutting by a quarter-point on Thursday but keeping its policy rate half a point higher by the end of 2025 than in earlier projections.
If Trump were to implement all of his policy proposals from the campaign, TD Bank forecasts that the resulting drag from tariffs and stricter border policies would outweigh any benefit in growth from possible tax cuts.
“This would leave the American economy on a weaker growth trajectory, with structurally higher deficits, inflation, and interest rates,” TD Bank economists wrote.
Small argues that, with the electoral results of the House still pending, the best outcome for markets might be a divided Congress that acts as a check to Trump’s administration.
How should investors react to the Trump win?
But Sheluk also notes that just because a politician says they’ll do something in a campaign does not mean the policy will unfold in the same way, if at all.
Until the Trump administration tables legislation or firms up policy plans, it’s impossible to know how those plans will impact sectors or specific companies in the market, he says.
For that reason, Sheluk recommends the average investor take little to no direct action in response to market fluctuations in the wake of the U.S. election.
“I don’t want to be glib about it, but it’s so hard to predict that building a well-diversified portfolio is going to be a much better approach than trying to guess exactly what’s going to happen,” he says.
Small says that, in the few hours since Trump’s election was clear, he’s been getting phone calls from clients asking about how they, too, can get exposure to assets like bitcoin that are surging.
But like Sheluk, Small says he’s made no changes to his own portfolio as of Wednesday.
Whenever markets are faced with a historical event like a U.S. election, he says it’s best to abide by a 24-hour or even three-day rule to wait and see where things are going to land.
“To me, there’s a lot going on. I think you want to take a step back for now. Give yourself 24 hours to see where the dust settles and then you can figure out your next steps,” he says.
— with files from The Canadian Press, Reuters