The stock market experienced a tech-led rally on Thursday, with the S&P 500 and Nasdaq Composite reaching new record highs. Investors digested a fresh interest rate cut from the Federal Reserve and the surprise victory of Donald Trump in the presidential election. The rally was driven by optimism over Trump's plans for corporate tax cuts and deregulation, which are expected to provide a boost to the economy and feed into stock prices.
A Surge of Confidence in the Trump Era
The Fed's Dovish Stance
In a widely expected move, the Federal Reserve cut interest rates by 25 basis points on Thursday, lowering its benchmark rate to a range of 4.5% to 4.75%. The central bank's decision was aimed at supporting the economy and maintaining stable prices. However, the Fed removed language from its policy statement that suggested it had gained greater confidence that inflation was moving sustainably towards its 2% target, raising questions about the pace and number of future rate cuts.The Trump Effect on the Markets
The stock market's exuberance following Trump's presidential election victory may be just the beginning of a strong few months of gains. Analysts predict that the president-elect will move quickly on his policy initiatives, and stocks will respond accordingly. The "public reengaged in speculation," as evidenced by Wednesday's market action, with bitcoin hitting a new high and Tesla stock soaring, could further drive the benchmark S&P 500 index higher.Preparing for Trump's Policies
American CEOs are already weighing the potential impact of Trump's policies on their businesses. Retailers, in particular, are expected to be affected by the president-elect's proposed increases in tariffs. Companies are already planning to reduce the percentage of goods they source from China to mitigate the impact of these tariffs. Additionally, the media industry is anticipating more consolidation opportunities under a Trump administration, as the new president is expected to be less restrictive on mergers and acquisitions.The Homebuilding Sector's Challenges
The homebuilding sector is facing challenges in the wake of Trump's election victory. Raymond James analysts have downgraded shares of DHI, a leading homebuilder, citing the expectation that mortgage rates will remain "higher for longer," constraining housing affordability. The analysts project that the entry-level homebuilders, whose core first-time buyers are likely to face even greater affordability challenges, will face near-term pressures.The Tech Sector's Dominance
The tech-heavy Nasdaq Composite has been a standout performer, with several of the market's largest stocks reaching new highs. The "Magnificent Seven" tech stocks, including Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, have led the market's charge, with the Roundhill Magnificent Seven ETF hitting a fresh record high on Thursday. The outperformance of these tech giants has been a key driver of the broader market's rally.The Fed's Stance on the Election
During his press conference, Federal Reserve Chair Jerome Powell made it clear that the central bank's policy decisions will not be influenced by the election results in the near term. Powell stated that the Fed does not know the timing and substance of any policy changes that may come from the new administration, and therefore, it does not speculate or assume the effects on the economy. The Fed chair also emphasized that a sitting U.S. president does not have the right to fire or demote a Fed chair or any of the Fed governors, as it is not permitted under the law.Inflation Trends and the Fed's Outlook
The latest reading of the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) index, showed that year-over-year price increases did not fall in September. However, Powell noted that the Fed also looks at the three- and six-month annualized rates of Core PCE to identify trends, and these measures are currently at 2.3%, indicating that the central bank has made significant progress in its fight against inflation.
