Stock Market Update

[BRIEFING.COM] There was no mistaking that the stock market thought the election outcome will be good for growth. Following the news that Donald Trump won the presidential election, and polling indications that suggest the GOP is likely to hold a majority position in the House and Senate, the major indices operated in rally mode on Wednesday.

There was the relief factor, with participants enthused that this won't be a contested election, and there was the growth factor, with participants thinking president-elect Trump's aim to lower tax rates and decrease regulations will foster economic growth that remains above potential.

That view of policy matters manifested itself in a variety of ways:

• Small-cap stocks soared
• Financial stocks soared
• The U.S. dollar surged against other major currencies
• Bitcoin prices moved noticeably higher
• Cyclical sectors outperformed
• Treasuries were sold, sending yields higher

Today's active buying interest sent the Dow Jones Industrial Average, Nasdaq Composite, S&P 500, and S&P 400 to record highs. The Russell 2000 didn't quite make it to that heady territory, but it led all indices with a material 5.8% gain.

The S&P 500 financial sector (+6.2%) was in good spirits, relishing the thought that regulatory oversight will be reduced and that growth optimism will spur increased capital markets activity. Goldman Sachs (GS 596.29, +69.33, +13.2%), KeyCorp (KEY 19.97, +2.70, +15.7%), and Discover Financial Services (DFS 182.63, +30.78, +20.3%) were laudable proxies capturing that upbeat view.

There were a lot of "big winners" today. Tesla (TSLA 288.53, +37.09) was among them, capitalizing handsomely on the idea that Elon Musk's strong support of Donald Trump will be an added boon for the company. Nucor (NUE 167.74, +23.13, +16.0%) and other steel stocks, which are expected to benefit from tariff protections under a Trump administration, put up some big gains as well.

Tesla's gain fueled a 3.6% increase in the consumer discretionary sector, which joined with the financial, industrials (+3.9%), and energy (+3.5%) sectors to lead the S&P 500. It wasn't a clean sweep for the S&P 500 sectors, however.

The real estate sector (-2.6%) and utilities sector (-1.0%) retreated with market rates rising. The consumer staples sector (-1.6%) lost ground in a risk-on rally that favored cyclical sectors; and it also felt the pinch of concerns about a stronger dollar weighing on earnings prospects for its multinational components and the specter of tariff retaliation that could raise the cost of goods sold. The U.S. Dollar Index was up 1.6% to 105.12.

Treasuries had a tough session. Selling kicked in overnight in response to the election results, sending the 2-yr note yield as high as 4.29% and the 10-yr note yield as high as 4.48% as growth optimism intermingled with worries about inflation and continued deficit spending driving up the national debt. They backed off a bit from those levels, aided by a $25 billion 30-yr bond auction that was met with strong demand. The 2-yr note yield settled the session up six basis points at 4.27% and the 10-yr note yield settled the session up 14 basis points at 4.43%.

The behavior of Treasury yields will remain a focal point Thursday when the FOMC announces its policy decision at 2:00 p.m. Et and Fed Chair Powell holds his press conference at 2:30 p.m. ET. The FOMC is widely expected to cut the target range for the fed funds rate by 25 basis points to 4.50-4.75%.

Today's economic data was limited to the MBA's weekly Mortgage Applications Index, which declined 10.8% with refinance applications down 19% and purchase applications down 5%.

• Nasdaq Composite: +26.5%
• S&P 500: +24.3%
• S&P Midcap 400: +18.2%
• Dow Jones Industrial Average: +15.6%
• Russell 2000: +18.0%

Thursday's economic lineup includes:

• 08:30 ET: Preliminary Q3 Productivity (Briefing.com consensus 2.3%; prior 2.5%) and preliminary Q3 Unit Labor Costs (Briefing.com consensus 0.5%; prior 0.4%)
• 08:30 ET: Weekly Initial Claims (Briefing.com consensus 222,000; prior 216,000) and Continuing Claims (prior 1.862 mln)
• 10:00 ET: September Wholesale Inventories (Briefing.com consensus -0.1%; prior 0.1%)
• 10:30 ET: Weekly natural gas inventories (prior +78 bcf)
• 15:00 ET: September Consumer Credit (Briefing.com consensus $13.5 bln; prior $8.9 bln)