The Trump Trade

I went to bed at midnight. A man has to get some sleep if a man is going to rise and make a living for his family in the morning. I had watched the election all night with my wife. She stayed up. I had it all planned. I would sleep until 4 a.m. (which is sleeping in a little bit). Usually, I try to be at my desk by 3:30 a.m. at the latest, but I was going to play the "old man" card and catch some shuteye.

In again came my excited wife, waking me: "They just flipped the Senate." I told her that had been a given and went back to sleep. In again came my excited wife. "Trump just won the presidency!" 

That, I did not expect, at least until Wednesday morning. Equity index futures then kept rising as former President and President Elect Donald Trump's chances kept improving throughout the night.

So, here I am, at my desk a little late. So be it. I find that not every media outlet has already put Donald Trump past the 270 electoral votes needed, some still have him in the 260s, but all have him leading in all of the states that had not yet been called. The GOP has indeed flipped the majority in the Senate, and as for the House, the red sweep is still very possible, but finding that out will take longer

Now we know that the betting markets were a heck of a lot more accurate than were the pollsters. I don't know how many folks had Trump defeating Harris fairly decisively in the popular vote on their bingo cards. 

As I wrap this up around 5:30 a.m. ET ... the last holdouts across the media are finally calling the election for the former and future president.

Overnight Markets

After partially pricing in a Trump victory on Tuesday, overnight U.S. equity market index futures are reacting almost euphorically to the thought of a coming era of deregulation coupled with corporate/individual income taxes that at least do not increase. While a Trump victory was always seen as possible, a potential Republican sweep had not been widely expected.

Asian and European equity markets are mixed. The U.S. Dollar Index is up sharply, as Trump had signaled a coming Elon Musk-led period of federal cost cutting. That said, the long end of the Treasury yield curve has sold off almost as sharply as equities have rallied. This has resulted in the spread between the yields of the U.S. One Month T-Bill and the U.S. Thirty Year long bond actually "un-inverting." Most commodities, including crude, gold, silver, copper and wheat are obviously lower in dollar terms.

A Trump Stock Market

What looks better than anything else? Probably materials and retailers that largely source domestically. Probably traditional energy, though with Elon Musk aboard, one must think that there must be something in this for electric vehicles and/or renewable (clean) energy. With the slope of the yield curve normalizing, the homebuilders and financials should do better. 

My one concern, as this is an area where I am active, is for the large defense contractors. These stocks are all up with everything else and have done well under what turned out to be a more warlike Biden administration than had been anticipated. That said, if there are to be efficiencies and savings to be found within the federal budget, this group may not be spared. 

What might not be so hot? Those materials, retailers and even chip/electronics stocks who source significantly from outside of the U.S. or its allies.

Tuesday's Trump Set-Up

U.S. markets rallied sharply on election day. The S&P 500 gained 1.43%, led by Palantir Technologies PLTR while the Nasdaq Composite scored a run of 1.43%. Smaller caps out-performed broader markets. The S&P 400, S&P 600 and Russell 2000 were up 1.42%, 2.03% and 1.88% respectively. The Dow Transports ran 1.74%, while the Philly Semiconductors popped for a gain of 1.69% and the KBW Bank Index gained 1.38%.

All 11 S&P sector SPDR exchange-traded funds shaded into the green on Tuesday, with six of those funds gaining more than 1% on the session. Discretionaries XLY and Industrials XLI were the leaders.

Breadth was overwhelmingly positive. Winners beat losers by a 9-to-2 margin at the New York Stock Exchange and by a rough 5 to 2 at the Nasdaq. Advancing volume took a commanding 80% share of composite NYSE-listed trade and a 77.6% share of composite Nasdaq-listed activity. Now, this is where it gets interesting ... aggregate trading volume across NYSE-listed securities was up 4.6% day over day, while aggregate trade across Nasdaq-listings was up a whopping 22.6% day over day?

What Does That Mean?

As readers well know, there are no guarantees, but a day of upside reversal on increased trading volume can be seen as a "day one"...

The rebound off of the 50-day simple moving average for the S&P 500 is easy to see on the chart, but the increased trading volume is barely noticeable. However, the positive set-up is as clear as a ringing bell on the chart of the Nasdaq Composite. Check this out...

On That Note...

Let us rock.

Economics (All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.73%.

07:00 - MBA Mortgage Applications (Weekly): Last -0.1% w/w.

10:30 - Oil Inventories (Weekly): Last -515M.

10:30 - Gasoline Stocks (Weekly): Last -2.707M.

1:00 p.m. - Thirty Year Bond: $25B.

The Fed (All Times Eastern)

Fed Blackout Period.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: CVS (1.53), JCI (.56), SMG (-1.95), SHOP (.27)

After the Close: ALB (-.43), LYFT (.20), MCK (6.87), QCOM (2.57)

At the time of publication, Guilfoyle was long PLTR equity.