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The votes have been cast and the news is out that Donald Trump is now president-elect Donald Trump. Additionally, while votes are still being counted, it is becoming clear that Republicans will have a majority in the House and the Senate, which effectively means President-elect Trump will have a mandate in Congress that will presumably make it easier to enact the policies he would like to see enacted.
Those policies, which feature lower tax rates and deregulation among the cornerstones, are being heralded by the stock market as pro-growth policies that will be a boon for corporate profit growth. That view has manifested itself in a big way in the equity futures market.
The S&P 500 futures are up 121 points and are trading 2.1% above fair value, the Nasdaq 100 futures are up 340 points and are trading 1.7% above fair value, and the Dow Jones Industrial Average futures are up 1,223 points and are trading 2.9% above fair value. For good measure, the Russell 2000 futures are up 5.5%.
It is a risk-on rally of epic election proportions. Bitcoin and other cryptocurrencies are on the move, the U.S. Dollar Index is up 1.8% to 105.30, and so-called "Trump trades," like Tesla (TSLA) and Trump Media & Technology Group (DJT), are soaring while industry groups such as banking, steel and defense are gaining ground in pre-market trading.
One area of note that is losing ground is the Treasury market. It is also spying the prospect of stronger economic growth, and perhaps the specter of inflation heating up again with tariff protections being another cornerstone of president-elect Trump's plan. The other bogey, arguably, includes concerns about the budget deficit and national debt continuing to increase with pro-growth policies oriented around lower tax rates and a lack of specifics on spending cuts.
Reportedly, president-elect Trump will tap Elon Musk to oversee a campaign to cut government spending, so there is an initiative to address the government's spending problem, but how that ultimately comes to pass remains to be seen.
The Treasury market, to be sure, is anxious to see how that component unfolds. Currently, the 2-yr note yield, which saw 4.29% earlier, is up five basis points to 4.26%, and the 10-yr note yield, which saw 4.48% earlier, is up 15 basis points to 4.44%.
We'll be watching the 4.50% level as the first line in the sand as a potential resistance point for the post-election rally, as that has been an area the past few years where multiple compression has ensued for a richly-valued stock market, which is apt to be trading around 22x forward twelve-month earnings -- or a 22% premium to the 10-year average, according to FactSet data -- on the opening rally effort.
For now, animal spirits are rising after the election, which is suppressing concerns about valuation and driving multiple expansion that is also being underpinned by an element of relief that the election is over and that the results won't be contested.
