US election 2016: Background

US stocks rally as Trump seen pursuing business friendly policies

Banks and drugmakers frolic on Republican victory

PUBLISHED : Thursday, 10 November, 2016, 6:31am
UPDATED : Thursday, 10 November, 2016, 10:20am

US stocks rose in heavy trading, with the Dow Jones Industrial Average briefly eclipsing its all-time closing high, as shares of banks to heavy equipment manufacturers rallied amid speculation Donald Trump will pursue business-friendly policies.

Health-care shares and lenders surged as investors unwound bets that a win by Hillary Clinton would bring stronger regulatory scrutiny. The SPDR S&P Biotech exchange-traded fund rose the most since 2008, while Pfizer Inc. and Merck & Co. jumped at least 6 per cent. JPMorgan Chase & Co. rose 4.6 per cent to a record, and Goldman Sachs had its best one-day gain in 4 1/2 years.

The S&P 500 rose 1.1 per cent to 2,163.11 at 4 p.m. in New York, extending its advance after rising above its average prices during the past 50 and 100 days. The Dow rallied 1.4 per cent, to a two-month high.

“Our base case is we’re more likely to see a more moderate president than we saw as a candidate and the market’s agreeing with that,” said Lowell Yura, head of multi-asset solutions for BMO Global Asset Management in Chicago, which oversees US$238 billion. “We don’t see a huge impact to short-term earnings and short-term economic growth.”

A knee-jerk selloff in global stocks and a rally in haven assets reversed on wagers that Trump would increase fiscal spending to spur economic growth, and as he struck a more conciliatory tone in his first speech as president-elect.

A Trump victory had been portrayed by analysts as having the potential to unhinge markets banking on a continuation of policies that coincided with the second-longest bull market in S&P 500 history. While Republican control of both houses of Congress may enable the party to enact sweeping legislation that would be considered pro-business, concern persists over the impact from Trump’s pledges to clamp down on immigration to the US and renegotiate free-trade agreements with countries including Mexico.

“People focus on the fact that his acceptance speech kind of changed the direction of the market,” said Krishna Memani, New York-based chief investment officer at Oppenheimer Funds Inc., which oversees $223 billion. “It was far more conciliatory and far more fiscal-focused than these acceptances typically are -- that made a world of difference.”

Election over, Donald Trump must now change his tune

A basket of stocks identified by Morgan Stanley that are most likely to benefit from a Trump win surged 6.4 per cent. The group includes 53 companies ranging from drugmaker Alexion Pharmaceuticals to construction-materials producer Martin Marietta Materials Inc.

Among other shares boosted by the Republican’s win, prison operators soared on speculation the new administration will rescind a government contract phase-out. Corrections Corp. and Geo Group Inc. jumped more than 21 per cent.

Companies gaining on Trump’s plans to boost infrastructure spending included equipment provider United Rentals Inc., capped its steepest advance in almost eight years, while Caterpillar Inc. added 7.7 per cent, the most since 2011. Vulcan Materials Co. climbed to an all-time high.

Along with the potential for a lighter regulatory burden, banks were also boosted by soaring bond yields as investors’ inflation expectations climbed on speculation a Trump administration and Republican Congress will ramp up spending to lift growth. Wells Fargo & Co. and Bank of America Corp. gained more than 5 per cent, with Wells Fargo jumping the most since 2012.

As the initial turbulence eased, odds for a Federal Reserve interest-rate hike in December climbed back to levels seen before Trump’s victory, after plunging below 50 per cent as the outcome unfolded. The market-implied chance of a move next month is 86 per cent, the same as the probability on Tuesday afternoon.

“The US that Trump inherits is doing pretty well economically,” said Nandini Ramakrishnan, a strategist at JPMorgan Asset Management in London. “From an investment perspective, this is not something that we would say is entirely negative as the market may see just this morning. There may be potential opportunities with some of these selloffs.”

In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 per cent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.