First Day of Trading After Midterms Proves a Challenge
The Dow surged and new highs topped 300, but the leadership keeps shifting before charts can develop.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
It was a strong day by almost any measure on Wednesday, and I’m still having a hard time getting in sync with this market. The day’s action shows why.
Good Day on the Surface
Investors celebrated gridlock after the Democratic midterms sweep. About 64% of stocks advanced, new highs topped 300 for the first time in weeks, and the Dow Jones Industrial Average finished near its highs with a gain of about 3.3%.
If we look under the surface, it gets murkier. Every other index faded from its early highs. The Dow outperformed because its heaviest hitters were the stocks that led. The Magnificent Seven carried the market, with Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) all up sharply, along with Dow names tied to housing and the consumer, such as Home Depot (HD) and Sherwin-Williams (SHW).
Oil was the big driver. The United States Oil Fund (USO) dropped 8% after President Trump said he has no immediate plans to strike Iran, and bonds perked up in the afternoon. Semiconductors, energy and some industrials struggled, and small caps gave back some of their early gains.
Leadership That Won’t Stay Put
There is logic to it. Voters were angry about gas prices, tariffs and the cost of living, and the market traded as if relief is coming on all three. But that trade didn’t exist on Tuesday, and it may not hold next week.
Look at the past month. We had a capex scare, a rotation into equal weight, a sharp drop in AI stocks and now an election that flipped sentiment overnight. Each shift reversed before it could build momentum. Just when you think you have the market figured out, the leadership changes.
For a small-cap stock picker, that is a tough setup. The strength today was in mega caps and Dow stocks, not in the names where I usually find an edge. When good positions get shaken out by volatility that has nothing to do with the companies, it is hard to stay with anything, and it is easy to start doubting your read.
What Would Change My Mind
There is a precedent for what I want to see. When Trump won his first term in 2016, the market made a similar swing from an overnight loss to a big gain, and a powerful rally followed. Small caps led it. The Russell 2000 rose 15 days in a row, a record streak.
That is the signal I’m looking for now. If small caps can hold a rally for several days and interest rates cooperate, the market will be playing to my strengths again. (I came into the day optimistic, but the way small caps faded cooled me off.) Until then, I’m not going to force it, and I’m not optimistic that we will see that sort of powerful momentum again.
Game Plan
When I can’t get in sync with the market, I slow down. That means smaller positions, fewer new entries and more patience. I’m still putting extra effort into new ideas, but I’m building a watch list, not chasing.
Earnings season gives me a way to work around the indexes, because catalysts trade on their own news. Precigen (PGEN) reported after the close, and Oscar Health (OSCR) and Xeris Biopharma (XERS) report Thursday morning. Those reactions will matter more to me than what the Dow does.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long AMZN, PGEN, OSCR and XERS.
