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The markets are reacting sharply to Donald Trump’s American election victory.
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US Treasury yields and the dollar are rising, while stock futures and cryptocurrencies are also seeing strong gains.
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Trump’s plans for a near-universal tariff and mass deportations are expected to increase inflation.
Investors are turning to the Trump trade after the former president secured a US election victory.
Trump passed the 270-vote majority in the Electoral College after winning Wisconsin in the early hours of Wednesday.
The victory has resulted in a continuation of the so-called Trump trade, which for months depended on the former president’s election chances. At the center of the trade are Trump’s plans for a near-universal tariff and mass deportations, which would increase inflation.
Here’s a look at how the markets are moving in response to Trump’s rising odds:
The yield on ten-year government bonds rose by as much as 21 basis points to 4.48%, the highest level since early July. The two-year yield – which is most immediately sensitive to changes in the Fed’s monetary policy – rose nine basis points to 4.27%.
A Trump victory is seen as an inflation eventwhich would fuel higher prices and wage growth.
Investors have been pricing in higher rates for weeks, believing Trump’s policies would make it difficult for the Fed to cut rates further, especially if inflation soars.
The Bloomberg Dollar Spot Index rose as much as 1.7%, the most in four years, reaching its highest level since November 2023. The dollar rose against every G10 currency, including gains of more than 1.7% versus of both the euro and the yen.
The dollar also rose as much as 3.5% against the Mexican peso before paring gains. The currency cross is seen as a measure of Trump’s election chances, given his stated desire to bring Mexican manufacturing back to the US.
The expected inflationary nature of Trump’s policies would likely push interest rates higher and could prompt the Fed to tighten monetary policy, reversing current easing efforts. These rising rates would then support further appreciation of the dollar.
Supporters of Trump’s proposed tax and regulatory policies see them as pro-business moves that would boost corporate profits and deal activity.
The S&P 500, the Dow Jones Industrial Average and the Nasdaq 100 climbed to new record highs.
Founder and CEO Elon Musk is an outspoken supporter of Trump. Shares of Tesla rose as much as 15% on Wednesday as the electric car maker was expected to be a major beneficiary of Trump’s presidential return.
Shares of Trump Media and Technology Group rose 35% at intraday highs before settling about 9% higher. The stock has seen a meme-like rally in recent weeks as the former president strengthened his position in the betting markets and in the polls.
Still, it’s a highly volatile stock, closing more than 10% higher or lower in five of the past six days. Last week, it saw a three-day drop of 40% as Harris’ election chances soared thanks to promising early polls.
The Russell 2000 index rose as much as 5.8%. Small-cap stocks are believed to be getting a huge boost from Trump’s protectionist policies as they tend to have more domestic activity.
The cryptocurrency rose as much as 10% to reach a new high above $76,000 before retreating slightly. A Trump victory is seen as bullish for bitcoin and the broader cryptocurrency industry, as Trump has done digital assets are firmly embraced in recent years.
“With Trump’s victory, conditions may be right for Bitcoin’s price to rise further as investors look for alternatives to the dollar,” Naeem Aslam, chief investment officer at Zaye Capital Markets, said in a morning note.
The CBOE Volatility Index, which measures expected 30-day volatility in the S&P 500 over a 30-day rolling period, fell 20%. Wall Street’s so-called fear gauge is generally trading inversely to the benchmark index, and the decline shows signs of calming nerves.
Read the original article on Business Insider
