A Red Wave Triggers a Gusher of Market Green
Will the surge produce sustained upside momentum or will traders start taking profits into strength?
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Stocks are broadly higher as Republicans are set to win the presidency, the electoral vote, the popular vote, the Senate, and (likely) the House. Pollsters appear to have badly misread the election, and Democrats seem shocked by the harsh rebuke from voters.
The implications of this shift in power will be tremendous, but the immediate reaction is a substantial surge in optimism and hope. Many exciting investment and economic themes will likely develop in the months ahead, and there will be big opportunities for traders and investors.
Both the Russell 2000 IWM and Bitcoin IBIT are indicated over 6% higher in the very early action. The DJIA, Magnificent Seven, and S&P 500 are up more than 2%, but the Nasdaq 100 QQQ is lagging with a 1.7% gain. Bonds TLT are sharply lower as interest rates surge higher due to the likelihood of stronger economic growth and a strong dollar.
The immediate question for us to ponder is whether this surge will produce sustained upside momentum or whether traders will start taking profits into strength. Once emotions cool off, there will be a push to identify specific stocks and themes that will benefit from Republican control.
In addition to trying to figure out the impact of the election, investors are also faced with a FOMC interest-rate decision on Thursday afternoon. It is still a near certainty that the Fed will cut rates by a quarter-point this week, but the odds of a quarter-point cut in December are declining, and Fed Chair Jerome Powell's commentary at his upcoming press conference will likely shift due to the election results.
The market obviously believes that Trump's policies will increase economic growth, but the big question is at what cost? Will there be a surge in inflation that requires a more hawkish Fed?
The macro picture will be very chaotic for a while, but the best opportunity for investors will likely lie in finding individual stocks that will benefit from the seachange in economic priorities. It is going to be a bumpy ride and will require very disciplined trading and investment.
Some folks may view the Republican victory as a negative, but the good news is that the dramatic news is going to create a truckload of new opportunities for savvy investors and traders.
At the time of publication, Rev Shark had no positions in any securities mentioned.
