Immediately after the 2024 presidential election, Wall Street looked like the running of the bulls in Spain. Throughout the night, financial markets, from stocks to cryptocurrency, incrementally ascended like a phoenix. Eventually, when Donald Trump appeared to have secured a second term in the White House, the stock market went gangbusters. But when all the smoke has cleared, all the dust has settled, and every last ballot has been counted, will investors keep cheering the prospect of Trumponomics, or will their ebullience fade faster than Kamalamentum?
A Snapshot of Wall Street
So, what did Wall Street look like in a post-election world? The blue-chip Dow Jones Industrial Average spiked about 1,500 points, or 3.5%. The tech-heavy Nasdaq Composite Index advanced nearly 500 points or 2.7%. The S&P 500 picked up 135 points, or 2.33%. Unsurprisingly, stocks related to or affected by Trump rose or fell. Of course, the likes of Tesla Motors and Trump Media and Technology Group spiked as much as 25% and 13%, respectively. Bank stocks emulated the joy while Bitcoin soared to an all-time high of $75,000.
It was not all fun and games, particularly for clean-energy and discount retailer stocks. The former suffered from concerns that the president-elect and GOP lawmakers would unwind the Inflation Reduction Act and the CHIPS and Science Act, removing the plethora of tax credits, grants, and other government subsidies. The latter sank on fears that Trump's across-the-board 10% tariffs and 60% levy on Chinese imports would impact trade and raise business and consumer prices.
Crude oil took a beating at the opening bell, though the energy commodity pared most of its losses by the session’s end. Oil prices tumbled on various factors, including a strengthening US dollar and the expectations that Trump's "drill, baby, drill" would accelerate domestic production. Natural gas picked up gains with the anticipation that Trump will bolster the country's liquefied natural gas (LNG) exports.
The US dollar and Treasury yields flew to the moon. But why? The buck jumped on growing calls that the Federal Reserve will slow its monetary policy easing initiative in response to renewed inflation worries. Treasury yields – the benchmark ten-year yield topped 4.45% – skyrocketed on concerns that Trump's policies will lead to lower federal revenues, forcing the US government to borrow more amid lackluster domestic demand. Various estimates project that Trump’s policies, whether eliminating taxes on Social Security benefits or extending the Tax Cuts and Jobs Act, will grow the budget deficit, add trillions to the national debt, and worsen the nation’s fiscal picture.
Gold and silver prices took a nosedive due to a strengthening dollar and ballooning government bond yields. Dollar-denominated precious metals are sensitive to these trends because a stronger dollar makes them more expensive for foreign investors to purchase, and rising interest rates boost the opportunity cost of holding non-yielding bullion.
Bam, Zoom, Right to the Moon?
It is easy for armchair traders to get caught up in the Wall Street euphoria. Massive gains make the average person think that they will continue forever.
Right now, it is safe to say that the many tenets of Trumponomics and a potential red wave in the House and Senate have been baked into the cake, be it tariffs or tax cuts. However, the one monstrous issue that will hang over the president’s head will be the national debt. Even if Washington continues generating $5 trillion in annual revenues and the incoming administration utilizes the Department of Government Efficiency to cut spending, it will never be enough because the United States has already been sucked into a fiscal black hole – and that is possibly what the Treasury market is signaling to the world. Mandatory spending accounts for two-thirds of the budget, forcing politicians to wrestle with a few powder kegs on the cusp of going off: Social Security, Medicare, and Medicaid.
History shows that even Teflon cannot protect against the idea of reforms to these programs.
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