Stocks Surge Post Election

Key Takeaways

• Stock Markets Surge, While Bond Yields Climb Amid Economic Uncertainty
• Interest Rates Rise, Potentially Impacting Corporate Financing And Stock Buybacks
• Tesla Jumps, Trump Media Surges, As Election Drives Market Reactions

On Tuesday, markets closed the regular trading session with solid gains across the board. The S&P 500 closed higher by 1.2%. The Nasdaq Composite gained 1.4% Meantime; small cap stocks surged with the Russell 2000 jumping nearly 2% while the Dow Jones Industrial Average gained 1%. Volatility, as measured by VIX, fell nearly 7%. And then the election happened.

Looking at premarket activity, we are seeing solid gains in stocks. However, bond futures have spent the night getting hammered, sending interest rates significantly higher. Much of the fall in bonds is related to economic forecasts suggesting a Trump Administration will engage in significant deficit spending and that is having the effect of increasing borrowing costs. The yield on the 10-year benchmark is currently 4.47% in premarket. As recently as September, that rate was just under 3.6%.

While gains in equities will garner much attention and their appreciation in price has a more immediate impact for many people, the situation with interest rates is what I will be watching in the coming weeks and months. Existing companies fund themselves by issuing bonds. A significant aspect of the rally in stocks we saw during the last Trump Administration was fueled by the issuance of low-interest rate bonds with the funds raised then going to buy back stock. Should interest rates remain at current levels or climb higher, it could put a damper longer term on both funding operations and stock buybacks.

Looking at a couple individual stocks this morning, shares of Tesla are up 13% in premarket. I find this interesting because I’m not quite sure what to make of it. Trump has never been a big fan of electric cars and taken through the lens as a proxy for Elon Musk’s overall portfolio, I would think the X platform’s future is a bit uncertain given Trump’s own social media application, Truth Social. Shares of Trump Media and Technology Group, the owner of Truth Social, are higher by 40% premarket.

While we still need to see how the vote in the House of Representatives ultimately shakes out, as things stand, Republicans will hold the White House and Senate. A sweep of all three will likely give the Trump Administration the ability to significantly cut regulations, which many see as a boost for corporate profits. However, should Democrats manage to flip the House, the ability for Trump to pursue his agenda will become more challenging. Once we have definitive results in the House, I can get a bit more into which segments of the economy may benefit most. Still, as it stands this morning, stocks seem broadly enthusiastic about the future.

For today, things certainly appear to be strong in the premarket. Volatility has come in significantly more overnight with the VIX well below 16. Earnings season will roll on with both Qualcomm and Lyft scheduled to report after the close. But my focus today is going to be on bonds. I do think this is a potential cloud on the horizon. While we are well below the 5% level in the 10-year that we saw last year, I do believe higher rates could disrupt the broader economy and bears monitoring. I think this discussion will take on added emphasis when the Federal Reserve Open Market Committee (FOMC) announces their decision on rates tomorrow, and then Jerome Powell holds his post-meeting press conference. As always, I would stick with your investing plan and long-term objectives.