By Lisa Pauline Mattackal and Ankika Biswas
(Reuters) -Wall Street's main indexes soared to record highs on Wednesday, as Republican Donald Trump won the 2024 U.S. presidential election in a remarkable comeback four years after he was voted out of the White House.
Wall Street is anticipating lower taxes, deregulation and a U.S. president who is quick to sound off on everything from the stock market to the dollar, even though tariff hikes could bring challenges in the form of higher deficit and inflation.
The Republican's win powered a rally in Trump trades, as U.S. Treasury yields surged, bitcoin hit a record high and the dollar gained. [MKTS/GLOB]
"The market response suggests that (a Trump victory) wasn't fully priced in, what we're seeing is an extension of the Trump trade that basically assumes a red sweep scenario where both the House and the Senate are controlled by the Republicans," said Candice Bangsund, portfolio manager, Private Markets Solutions at Fiera Capital.
The small-cap Russell 2000 jumped 4.7% to a near three-year high, as domestic-focused stocks expect to benefit from an easier regulatory and tax regime, as well as be less exposed to likely import tariffs.
"The next 6-12 month outlook for small caps to have a catch up trade is absolutely intact," said Sean Gallagher, global head of Lazard (NYSE:LAZ)'s Small Cap Equity Platform.
The VIX, a measure of market volatility, dropped nearly 5 points to its lowest since September.
The Dow Jones Industrial Average rose 1,345 points, or 3.19%, to 43,566.98. The S&P 500 rose 120.78 points, or 2.1%, to 5,903.45, while the Nasdaq Composite rose 436.48 points, or 2.37%, to 18,875.65.
Most of the S&P 500's sectors were trading higher. Financials led the gains with a 5.5% surge to hit a record high, while the KBW bank index was set for its best day in four years.
The Energy, Industrials and Consumer Discretionary sectors were up around 3% each.
However, rate sensitive real estate and Utilities slipped as investors assessed the chances of Trump's policies boosting inflation and dampening the rate-cut outlook, which has been a key driver of Wall Street's recent rally.
The central bank is widely expected to ease benchmark interest rate by 25 basis points on Thursday. But, traders have begun to trim bets on the cuts expected next year. [US/]
"That sharp (move) up in Treasury yields has the potential to weigh on stock market valuations," Bangsund said.
Stocks that are expected to perform well under a second Trump term posted strong gains, with Trump Media & Technology Group up 9.3%. Tesla (NASDAQ:TSLA) leapt 14% as CEO Elon Musk has supported Trump in his electoral campaign.
Strong gains were also seen in shares of cryptocurrency companies, energy firms and prison operators, while renewable energy shares fell.
Market focus turned to whether the Republican party could maintain a majority in the House of Representatives after gaining control of the U.S. Senate.