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US stocks were on course for their best week in a year on Friday following a frenzied rally sparked by Donald Trump’s sweeping election victory.
The S&P 500 was up 0.4 per cent at 5,998 by early afternoon in New York, falling back slightly after breaking through 6,000 for the first time. Since Monday, the index has gained 4.7 per cent.
“Markets got a boost from a Trump victory then another jolt from the Fed this week,” said Scott Chronert, US equity strategist at Citigroup.
Wednesday’s 2.5 per cent jump was the S&P’s best day in more than two years. On Thursday, the Federal Reserve cut interest rates by a quarter-point.
Sebastien Page, head of global multi-asset and chief investment officer at T Rowe Price, said there was an element of a relief rally this week following the election.
“That’s a big part of it. We now know who’s going to be president, and we kind of know what their policies are about,” he said. “The market is expecting deregulation, lower taxes and higher inflation.”
The moves were helped by a strong rally in billionaire Elon Musk’s Tesla, the market value of which rose above $1tn for the first time in more than two years.
Tesla, up more than 8 per cent on the day, was on course for its best week since early 2023. Bets that Musk’s closeness to the incoming president will support the electric vehicle maker’s fortunes fuelled the nearly 30 per cent gain.
The Fed’s decision to cut its benchmark interest rate by a quarter-point had been widely expected. However, chair Jay Powell avoided commenting on the potential impact of a Trump presidency on the economy.
He was also emphatic that he would not step down early if asked to do so. Investors had worried that, if elected, Trump might use his position to frustrate the central bank’s independence or any move to put up interest rates.
“Ultimately, as Powell said last night, anyone whose job it is to predict the economy will tell you how hard it is,” said William Vaughan, an associate portfolio manager at Brandywine Global Investment Management. “It is important to focus on announced policies rather than pre-election rhetoric, which can often be extreme to win an election.”
A rally on Friday in US Treasuries led them to recover almost all the ground lost in the initial dramatic sell-off sparked by Trump’s victory.
The yield on the 10-year Treasury slipped as low as 4.27 per cent — below the level where it closed on November 5, the day before the US election result sent “Trump trades” tearing across global financial markets, before rebounding slightly to 4.29 per cent.
Earlier in the week, investors had dumped bonds, betting that Trump’s plans for tariffs and tax cuts would fuel inflation and that the path of interest rates would need to be higher than thought. The 10-year Treasury yield jumped to 4.48 per cent, a four-month high, as the results of the election came in.
But traders have since been encouraged by the Fed chair’s comments that it was too early to judge whether the incoming president’s policies would change the interest rate outlook.
“I don’t buy that Trump will cause a wave of inflation,” said Matthew Morgan, head of fixed income at Jupiter Asset Management. He pointed to the cooling jobs market as evidence for the fund manager’s view that market expectations of higher inflation had been overdone.
Some investors viewed the initial market reaction to Trump’s victory as a knee-jerk response to his campaign rhetoric on tariffs, questioning whether these represented an initial negotiating position and whether broad-based tariffs could get through Congress.
