Market Insights

Stocks are exploding to new highs as investors look forward to a second Trump Administration.

The S&P 500 surged 4.7 percent between Friday, November 1, and Friday, November 8. It was the biggest weekly gain in a year, sending the index above 6,000 for the first time ever. The Dow Jones Industrial Average hit a new record above 44,000 and the Nasdaq-100 cleared 21,000.

Banks, small caps, steel makers, consumer discretionaries and industrials led the surge. Those companies are viewed as potential beneficiaries of the incoming administration. Investors think Trump will loosen regulations on banks, letting them boost dividends and buybacks. Small caps and steelmakers could gain along with a stronger domestic economy. Industrials rose the most in over two years.

Tesla (TSLA) helped power the breakout after CEO Elon Musk closely allied with Trump. His EV maker had its best week since early last year, regaining a market cap above $1 trillion.

“A lot of money was taken out of the market because of uncertainty around the election,” Tom Lee of Fundstrat told CNBC on Friday. “I do think there’s still a lot of upside.” Lee said the S&P 500 may reach 6,700 next year and expects small caps to outperform the broader market by a wide margin.

Inflation and the Fed

The Federal Reserve cut interest rates by 25 basis points. The target rate is still about 200 basis points above inflation, which suggests the central bank has potential for further easing. That, combined with euphoria around the election, may reduce the importance of the Fed as a news catalyst in the coming months. Attention may instead focus on changes in Washington.

Aside from the reaction in the market, there could already be signs of the shift starting. The University of Michigan’s consumer sentiment index rose more than expected to its highest level since May. The expectations sub-index reached the highest in over three years as Americans felt better about their finances, income prospects and business conditions.

The yield on the 10-year Treasury note dropped for the first time in three weeks. That’s potentially important because the increase since mid-September caused worries about higher borrowing costs. The yield is pausing at a potentially key level from 2008. It’s also forming a potentially lower high relative to April.

Palantir, Axon

Nearly four-fifths of the S&P 500’s members climbed last week, including all 11 major sectors.

Axon Enterprise (AXON) led the index with a 42 percent surge last week. The supplier of police equipment like Taser stun guns has pivoted to cloud-based services, including AI for law enforcement. Profit, revenue and guidance were higher than expected. AXON also had its biggest weekly gain since 2008 and is the S&P 500’s fourth-best performer this year, according to TradeStation Data.

Palantir Technologies (PLTR) beat estimates in its first quarterly report since joining the S&P. The software and AI company is now firmly above its previous high from January 2021.

EPAM Systems (EPAM) and Trimble Navigation (TRMB) also climbed after announcing results.

AppLovin, IonQ

Last week additionally saw dramatic rallies in newer stocks outside the S&P 500. Many are smaller growth companies that went public this decade and are now returning to levels from the onset of the last bear market.

• AppLovin (APP) helps mobile-app developers grow their products and reach more users. It jumped 77 percent after beating estimates and is up more than 600 percent this year. If APP were a member of the S&P 500, it would rank in the top quarter based on market cap.
• Doximity (DOCS) provides cloud-based office services to doctors. It rallied 38 percent on strong results and guidance. DOCS is now back to its highest level since February 2022.
• IonQ (IONQ) develops quantum computers with ionized atoms instead of traditional circuit boards. It surged 67 percent to a three-year high after revenue beat estimates.
• Toast (TOST) provides software and payment services to restaurants. It advanced 21 percent last week after earnings shot past consensus.

Most of last week’s big decliners, like Celanese (CE) and Match (MTCH), slid after reporting numbers.

The worst performing group overall was solar energy. Those stocks are considered less likely to benefit from a Trump presidency. Precious metals also slid as fear subsided.

Charting the Market

Last week’s breakout seems to confirm the powerful bull market that’s driven the S&P 500 in the last year. The move followed a modest pullback to the 50-day moving average, potentially consistent with an uptrend.

Next, 135 index members hit new 52-week highs. That’s the most in over three years, according to TradeStation data.

Oscillators like moving average convergence divergence (MACD) and Wilder’s Relative Strength Index (RSI) also jumped. Both had shown signs of weakening, and now their quick rebound could indicate a strengthening of momentum.

The 10-year Treasury yield and Cboe’s volatility index (VIX) also fell last week, which may reflect less risk. VIX might be especially important because it’s still 3-4 points above its summer lows. Further declines from here could increase risk appetite.

Next, Federal Reserve data shows money market balances up 7 percent from late April and 71 percent in the last two years — despite stocks rallying. Separate information from FINRA shows margin balances in September were 13 percent lower than the previous peak in October 2021.

In other words, there could be significant cash on the sidelines and not a lot of leveraged money in the market. That could suggest buying power isn’t exhausted and money can still enter risk assets — especially if the VIX slides further.

The Week Ahead

This week brings some economic data like inflation and retail sales. While those are normally be important, they could now be “ancient history” because they cover the month of October. That could reduce their impact in the post-election environment. There are also a handful of earnings.

Nothing important is scheduled for today. Tomorrow brings results from Home Depot (HD) and Cava (CAVA).

The consumer price index (CPI) is on Wednesday morning. Cisco Systems (CSCO) reports quarterly numbers after the closing bell.

Thursday is busy with the producer price index (PPI), initial jobless claims and crude-oil inventories. Fed Chair Jerome Powell will deliver a speech at 3 p.m. from Dallas. Disney (DIS), JD.com (JD) and Applied Materials (AMAT) report earnings.

Retail sales and industrial production are on Friday morning. Results are also due from Alibaba (BABA).