The election is finally over and the market is ready to move on — and move it did.
From the close of the market on Nov. 8 through Friday, Nov. 11, the S&P 500 was up 1.2 percent, with the Dow Jones Industrial Average (Dow) up 2.8 percent.
Some investors predicted that Mr. Market would act negatively to a Trump win, and if you were looking at the overnight futures, you would think that the next day would have had a sizeable move downward. However, the market opened only slightly down but quickly turned around and rose to a new all-time high for the Dow and didn’t look back.
It is interesting to see how both the stock and bond markets have reacted and where there still might be investment opportunities.
The overall stock market rose over the next few days after the election, with certain sectors showing more substantial growth than others. Financials was the leading sector of the S&P 500 with gains of 8.3 percent from the close on election Tuesday through the following Friday. These gains could have been the result of a combination of an increased chance of inflation under a Trump administration, the likelihood that the Federal Reserve will raise interest rates in December and the likelihood that there will be more lending from banks and deregulation under Trump.
The Industrials sector (up 4.8 percent from the close on election Tuesday through the following Friday) was impacted likely due to the impending infrastructure changes that are to come at the Mexican border and throughout the country. Health Care (up 3.1 percent), on the other hand, saw significant relief from Trump’s win, since Clinton had made it clear that she was going to go after the pricing of drugs in the health care space and try to cut the costs of health care in general. Specifically targeted were Biotech stocks, which saw the most significant moves in the sector, especially the first day of trading on Nov. 9.
It wouldn’t be fair not to mention the significant move in small cap stocks. The Russell 2000, an index that represents small cap stocks, gained 7.6 percent from the close on election Tuesday through the following Friday. The Russell 2000 was heavily invested in the Financials sector, which was a big contributor to the gain for the index.
Finally, interest rates that rose after the election contributed to the drop in bond prices. As previously mentioned, interest rates are rising likely due to a perceived increased chance of inflation and the probability of the Federal Reserve increasing interest rates again this month and in years to come. This increased chance of higher interest rates will reallocate money away from riskier investments into safer investments that are now offering higher yields.
Overall, the stock market has reacted with optimism to President-elect Trump, while the bond market has remained tough as interest rates have risen.
It is important to remember that, as an investor, you need to keep your investments diversified to protect yourself against unexpected downturns in the overall market and specific sectors.
Hunter Larson is a Grays Harbor native and a 2012 graduate of Aberdeen High School and Grays Harbor College. He graduated from Gonzaga University in 2014 with a bachelor’s degree in business administration with a finance concentration, magna cum laude. Hunter joined D.A. Davidson in 2015 as a research associate and successfully contributed to the IIG Research Team for more than a year before accepting a position as financial adviser in Aberdeen.