The re-election of Donald Trump has ignited a frenzy on Wall Street, propelling major stock indexes to unprecedented heights. Investors are betting big on the economic boost that Trump’s potential policies, such as lower corporate and individual taxes alongside deregulation in the financial sector, could bring. This optimism is particularly evident in the tech and electric vehicle sectors, with Tesla Inc. (TSLA) soaring over 30% this week, significantly boosting Elon Musk’s wealth.
However, amidst the euphoria, concerns about rising inflation and the potential impact of increased trade restrictions are beginning to surface. While small- and mid-sized stocks have outperformed large caps, driven by expectations that domestic businesses might benefit from restricted trade, the Russell 2000 index (tracked by the iShares Russell 2000 ETF IWM) and regional banks (tracked by the SPDR S&P Regional Banking ETF KRE) have also seen significant rallies, signaling a broader market enthusiasm.
Adding to the bullish sentiment, cryptocurrencies have achieved new all-time highs, fueled by anticipation of a more favorable regulatory environment for digital assets under a second Trump term. The Federal Reserve’s decision to cut interest rates by 25 basis points to a target range of 4.5%-4.75% has further bolstered investor risk appetite, propelling the combined market valuation of the Magnificent Seven tech giants past the $17 trillion mark.
Despite the celebratory mood, some experts are cautiously watching developments. The Federal Reserve Chair, Jerome Powell, has downplayed Trump’s threat of removal, but economists predict that Trump may not extend Powell’s term beyond its 2026 expiration. While Powell has adopted a dovish tone, minimizing concerns over rising Treasury yields, the market’s renewed inflation expectations are a source of worry for many.
The potential impact of a Trump victory on the tech and EV sectors, and the pace of AI advancements, is also a point of contention. Analysts warn that Trump’s policies could stifle innovation and negatively impact industries that rely heavily on technology and sustainable investments.
Looking back at the S&P 500 sector performance during Trump’s first term, the technology and consumer discretionary sectors emerged as outperformers, while the energy sector lagged. In the initial three months following Trump’s 2016 election, financial stocks led the pack.
However, a University of Michigan survey released Friday painted a positive picture of consumer sentiment, indicating a six-month high and surpassing forecasts. The survey also revealed a drop in inflation expectations to a four-year low, offering some relief amidst the uncertainties surrounding the economic landscape.
