The Dow is expected to rise more than 1,200 points with Trump's re-election

new York
CNN
—

Markets are set to rise sharply on Wednesday morning following a shift towards the Republicans, including a decisive and momentous victory by former President Donald Trump in the US presidential election on Tuesday.

Dow futures rose 1,200 points, or 2.9%. Futures for the broader S&P 500 rose 2.3% and the tech-heavy Nasdaq rose 1.8%.

In part, the fact that the election was decided relatively quickly may have boosted the markets. The election has clouded the US economy and the US stock market in recent months. Markets in particular crave certainty, and the clear path forward will allow companies to adjust their business and hiring plans.

But stocks could also react, particularly to Trump's election victory. After President Joe Biden's victory in 2020, Trump flipped several swing states and Republicans also took control of the Senate. Several key House races are still undecided. A so-called red wave could usher in an era of deregulation and other business-friendly laws and policies that investors believe could benefit the stock market.

“We expect the stock price to rise as we overcome uncertainty, volatility decreases and hedges are unwound, with investors refocusing on the Fed at a time when the economy and corporate earnings remain robust “, JPMorgan analysts predicted in a report ahead of Tuesday’s election results. As part of a “red wave,” the bank said stocks would rise through the end of 2024, but “uncertainty over policy implementation would increase more strongly in 2025.”

However, markets and the economy have generally performed better under Democratic presidents — although stocks have boomed regardless of which party controls the White House. According to Sam Stovall of CFRA Research, the S&P 500 grew an average of 10% among Democrats and 6.7% among Republicans. Gross domestic product, the broadest measure of the U.S. economy, averaged 3.9% under Democratic presidents, well above the 2.4% under Republican presidents.

Trump has advocated measures such as tax cuts and increased government spending that could spell trouble for the economy and significantly increase America's budget deficit. This devalued U.S. Treasury bonds, causing yields to rise, which move in the opposite direction of bond prices.

The 10-year bond yield rose above 4.4%, undermining the Federal Reserve's efforts to cut interest rates to stimulate the economy. The Fed has raised interest rates in recent years to counteract a devastating rise in inflation. However, it began cutting rates in September and is widely expected to cut again on Thursday after the conclusion of its two-day policy meeting.

Although the federal funds rate can influence Treasury yields, consumer credit, including mortgage rates, auto loans and credit cards, are more closely tied to Treasury yields. So Trump's victory appears to be keeping those interest rates a little higher, at least for now.

Other so-called Trump trades, including shares of his social media stock Trump Media & Technology Group, rose sharply on Wednesday morning. TMTG shares, trading under the symbol “DJT,” rose 30%.

The US dollar also rose 1.7% against the euro and the British pound to its highest level since July. The dollar could benefit from Trump's radical plan to significantly increase tariffs, potentially leading to more domestic demand for U.S. goods – although most economists reject the plan and many suspect it will not change consumer behavior.

However, Trump's tariff plan could spur inflation, which could also undermine the Fed's rate-cutting efforts.

Bitcoin also shot to a new high of almost $74,000 on Wednesday morning. Trump has become interested in cryptocurrencies in recent months after largely rejecting them during his first term. Crypto has surged as Trump's re-election chances appeared to be increasing.

European stocks underperformed their US counterparts on Wednesday morning. The Stoxx Europe 600 index, the benchmark for the region, rose 1.3%. Germany's DAX and France's CAC rose 0.7% and 0.8% respectively, while London's FTSE 100 was 0.9% higher on the day.

In Asia the picture was mixed. Japan's Nikkei 225 closed 2.6% higher, while Australia's S&P ASX gained just 0.8%.

“A strong Trump presidency and a weak (Japanese) government should be a good combination for Japanese markets, particularly stocks, as U.S. pension money flowing to Asia will continue to face challenges investing in China,” Neil Newman said , Head of Strategy at Astris Advisory in Tokyo.

In China, the Shanghai Composite Index was broadly unchanged, while the Hang Seng Index in Hong Kong closed 2.2% lower.

“Chinese stocks sold off overnight in anticipation of higher tariffs on U.S. imports from China,” Daniel Murray, deputy chief investment officer and head of research at EFG Asset Management, said in a note.