Going into the election, experts told us the race was incredibly close and would come down to the wire. But in the end, once again, even with all the resources and data at their disposal, the experts got it wrong. Remember, we always say this: no one can tell you with any certainty what the future will hold. And this applies to politics just as much as it does to financial markets.
As it stands, two things are clear. First, based on the election results, about half of the country woke up Wednesday morning disappointed. That, however, was predictable, as it was bound to happen regardless of who won. The second and less predictable outcome was that the election was decisive. Again, going into Tuesday, that was not the expected result. There were concerns that we wouldn’t know who won for days, if not weeks. And it was this clarity, much like adding lighter fluid to a fire pit, that rocketed equity markets higher this week.
Equity markets started gaining steam Tuesday, with all U.S. indices up over 1%, perhaps trying to get ahead of an unexpected election outcome. However, it was overnight Tuesday into the market opening Wednesday, when the election outcome seemed clear, that equities started ripping higher. By the close of markets on Wednesday, we saw the following:
- S&P 500 | +2.5%
- NASDAQ | +3.0%
- Dow Jones Industrial Avg. | +3.6%
- Russell 2000 | +5.8%
- Bitcoin | +9.4%
Now, to be clear, this wasn’t just due to the clarity of the election outcome. In part, it was due to who won the election. And we’re noting this not because of the magnitude of the change but because of the specific types of companies that were most impacted. For instance, some banks and consumer lending companies saw 20% increases as the regulatory outlook may favor lighter capital regulation. Domestic steel producers saw 20% increases as they are expected to enjoy new protection from foreign competition due to new tariffs. And crypto-related stocks saw 30% increases with the expectation of friendly legislation.
On the flip side, green-adjacent companies in the EV and solar energy space saw declines of 10%-30% with the expectation of fewer subsidies and a focus on fossil fuel production. Consumer goods stores and discount retailers, which are import-dependent, were down on concerns about new tariffs. And home builders were down on the continued surge in interest rates. So, straightforward bets were being made on expected policy shifts. Whether it plays out that way in the coming years, we’ll just have to wait and see.
Finally, I’ll leave you with this. Even with the most intelligent analysts, the best data, and all the resources you could ask for, no one can predict what will happen next. Just look at the chart below, which shows the end-of-year estimates for the S&P 500 from 20 of the largest and most prestigious banks and investment firms. They aren’t even close. The S&P 500 is 11% higher than the closest projection, 24% higher than the average, and 43% higher than the worst estimate (from global behemoth JPMorgan).
So, as we move forward from here, no matter how you feel today, keep an open mind. If you’re happy with the election outcome, it’s likely things won’t be quite as good as you expect, and if you’re upset with the election outcome, it’s just as likely things won’t be quite as bad as you fear.
Economy
- Markets rocketed higher on Wednesday after the definitive election results. The S&P was up 4.7%, the Nasdaq was up 5.7%, and the small-cap Russell 2000 was up 8.6%.
- The Fed lowered the federal funds target range by 25 basis points to 4.5%-4.75% at its meeting this week. This follows a jumbo 50 basis point cut in September, both of which were as markets expected.
- Policymakers reiterated their previous message that they will carefully assess incoming data, the evolving outlook, and the balance of risks when considering additional adjustments to borrowing costs.
- Total outstanding jobless claims rose more than expected to 1,892,000 in the week ending October 26th, the highest in nearly three years.
Stocks
- U.S. equities were in positive territory. Consumer Discretionary and Energy were the top performers, while Consumer Staples and Utilities lagged. Growth stocks led value stocks, and small caps beat large caps.
- International equities closed lower for the week. Emerging markets fared better than developed markets.
Bonds
- The 10-year Treasury bond yield decreased five basis points to 4.31% during the week.
- Global bond markets were in positive territory this week.
- High-yield bonds led for the week, followed by corporate bonds and government bonds.
