November 9, 2024 Market Update
The week ending Friday, November 8, 2024, turned out to be the best of the year so far for U.S. stocks, with major U.S. indexes posting record highs. Both the S&P 500 Index and the Dow rose more than 4.6%. Even stronger performance came from the tech-heavy Nasdaq and the Russell 2000, a proxy for small-cap U.S. stocks, surging approximately 5.7% and 8.6%, respectively, in a remarkable run.
Meanwhile, the 10-year Treasury yields took a breather, ending a seven-week streak of consecutive gains. As a result, the broader U.S. bond market, as measured by the Vanguard Total Bond Market ETF (BND) posted a modest gain of 0.76% for the week.
Donald Trump became just the second U.S. President to be re-elected to nonconsecutive terms, the first being President Grover Cleveland. Cleveland was re-elected in 1892, after previously serving from 1885 to 1889.
As President-Elect Trump prepares to assume office again, his administration is expected to push for significant policy changes, particularly in areas such as immigration, trade, and foreign relations. He has also supported lower taxes, less regulation, greater governmental efficiency, and cryptocurrencies. These policies could have a significant impact on the markets if they are enacted.
- President Trump has argued in favor of lower capital gain taxes. Should that happen, stocks will become a more attractive investment, which would likely lead to higher stock prices.
- Corporate tax cuts and deregulation could boost after-tax profits, and lower compliance costs, allowing companies to retain more earnings and/or increase dividends, which would benefit stock prices.
- Tariffs on imported goods raise costs for foreign competitors, making domestically produced goods more competitive and increased demand for U.S. made goods. That should lead to higher revenues and higher stock prices for domestic companies.
- Despite Trump’s re-election, the Federal Reserve proceeded with a quarter-point rate cut last Thursday, as anticipated. However, Trump’s proposed tax cuts, heightened fiscal spending, and increased tariffs could fuel inflationary pressures. If inflation does rise, the Fed may find itself limited in its ability to cut rates further, which could drive bond yields higher and bond prices lower.
- Concerns over inflation are driving up interest rates on long-term bonds and mortgages, putting added pressure on the housing market. Higher mortgage rates mean that buying a home becomes more expensive, potentially further dampening demand and exacerbating the challenges already facing the housing market.
- High inflation and rising interest rates may also strengthen the dollar as currency investors seek higher returns. That may be hard on companies that sell goods and services overseas. The Wall Street Journal Dollar index rose about 2% on Wednesday.
- During his keynote address at the Bitcoin 2024 conference in Nashville, Tennessee, Trump expressed his intention to make the U.S. the “crypto capital of the planet” and announced plans to create a Bitcoin “strategic reserve” utilizing the cryptocurrency holdings currently possessed by the government. If these proposals become a reality, cryptocurrencies could rise sharply.
Stocks have risen, the dollar has shown strength, and cryptocurrency soared in the immediate aftermath of the election. Nonetheless, the long-term impact of President’s Trump re-election will depend on the extent of the implementation and global reception of his policies.