The 2024 presidential election has sent shockwaves through the financial markets, with all three major indexes reaching record highs in the aftermath of Donald Trump's victory. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have all experienced significant gains, signaling investor confidence in the new administration's policies.
Riding the Wave of Optimism
Market Surge and Sector Standouts
The S&P 500 and Dow Jones Industrial Average rose more than 4.5% over the past week, while the Nasdaq Composite saw an impressive near-6% increase. This rally was driven by a surge in investor optimism, with certain sectors and industries emerging as clear beneficiaries of the Trump victory.Big Tech companies, often the subject of regulatory scrutiny, saw significant upside, with the Roundhill's Magnificent Seven ETF, which tracks the performance of Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, hitting fresh record highs. Three of these tech giants – Tesla, Nvidia, and Amazon – outpaced the broader S&P 500 index for the week.Investors appear to be pricing in the potential for less government regulation over the tech industry during a second Trump term. This sentiment was further reinforced by the swift congratulatory messages from industry leaders, including Amazon's Jeff Bezos, Microsoft's Satya Nadella, Meta's Mark Zuckerberg, and Alphabet's Sundar Pichai.Small-Cap Surge and the Fed's Influence
The rally was not limited to large-cap stocks, as small-cap companies also benefited from the post-election optimism. The Russell 2000 small-cap index jumped more than 5% on Wednesday, marking its best day in nearly two years, and closed the week up over 8% – its strongest performance since April 2020.This raises the question of whether now is the time for investors to pile into small-cap stocks, given the Federal Reserve's anticipated interest rate cuts. However, Piper Sandler's chief investment strategist, Michael Kantrowitz, cautions that the small-cap rally may be premature. While the index would likely benefit from lower rates, Kantrowitz notes that earnings estimates for the small-cap S&P 600 index have been declining, in contrast to the rising estimates for the broader S&P 500.Inflation and Retail Sales in Focus
As investors navigate this post-election landscape, the economic calendar will be closely watched in the week ahead. The release of the October Consumer Price Index (CPI) on Wednesday will provide a fresh reading on inflation, which is a key factor in the Federal Reserve's monetary policy decisions.Wall Street economists expect headline inflation to have risen 2.6% annually in October, up from 2.4% in September. Core CPI, which excludes volatile food and energy prices, is forecast to have increased 3.3% year-over-year, unchanged from the previous month.Additionally, the October retail sales report on Thursday will offer insights into consumer spending, a crucial driver of economic growth. Economists estimate that retail sales increased 0.3% over the prior month, with the control group of retail sales – which feeds directly into GDP – also expected to have risen by 0.3%.Earnings Season Continues
The earnings calendar will also be in focus, with quarterly results from major companies like Home Depot, Cisco, and Disney set to be released in the coming week. Investors will be closely monitoring these reports for insights into the performance of various sectors and the overall health of the economy.Disney's results, in particular, will be closely watched as the media giant looks to continue improving its streaming business amid ongoing challenges in the linear television landscape. Profitability in the streaming segment, bolstered by recent price hikes and the company's crackdown on password sharing, is expected to be a bright spot.As the markets navigate this post-election environment, investors will be closely monitoring the economic data, corporate earnings, and the Federal Reserve's policy decisions to gauge the trajectory of the economy and the sustainability of the current market rally.
