A stretch that goes down as the best week for US stocks in two years has been anything but easy money for the traders who had to navigate it.
Three distinct narratives have driven trading, combining to lift the S&P 500 Index more than any time since 2014 and give the Dow Jones Industrial Average its best week in five years. Stocks rallied on Monday and Tuesday on speculation Hillary Clinton would win the presidency, then posted almost equally big gains on Wednesday and Thursday as investors warmed to Donald Trump’s fiscal stimulus policies.
The week ended on a down note for the S&P 500, as gains in banks and drug stocks were pared. In the middle was an hour-long election night plunge that would’ve lopped $1tn from the S&P 500 had it come during regular trading hours.
“The last two to three days have had everything to do with re-pricing in a complete regime change,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180bn at Stifel Nicolaus & Co. “You have markets that now have to contend with the idea of a much larger fiscal push then they were expecting just a few days ago. You’re seeing a big rally in economically sensitive assets.”
The S&P 500 rose 3.8% in the five days, while the Dow rallied 959.38 points for its best week since 2011. Small caps in the Russell 2000 Index surged 10%. The Nasdaq 100 Index added 1.5%.
Along the way, the Dow also closed at record for the first time in three months as investors snapped up what they calculated would be beneficiaries of a Trump presidency. The surge in stocks following a presidential election echoed 1996 and 1972, when the blue-chip index made fresh highs after victories by Bill Clinton and Richard Nixon.
Exchange-traded funds tracking US equities took in $16.3bn of fresh cash on Wednesday and Thursday, data compiled by Bloomberg show. It included $8bn of inflows into a security tracking the S&P 500 that was the biggest in 14 months. It was the first week in history that had two days with more than 12bn shares traded.
It’s only 72 hours after the election but going by reactions in big chunks of the stock market, investors aren’t waiting around to find out how hard it will be for Trump to enact his economic agenda.
They’re shooting first without a clear read on how strong a tie he’ll forge with the Republican Congress, a key to getting potentially deficit-swelling proposals like tax cuts and spending implemented.
Banks surged 11% in the five days, the most since 2009, on speculation that the president-elect and Republican-controlled Congress will roll back regulations. Trump’s promise to revive the nation’s infrastructure sent industrial shares soaring more than 7.5%, with commodities needed for everything from airports to bridges expected to benefit, according to Goldman Sachs Group.
Small caps also benefited from the election news, extending a rally to six days and leaving the Russell 1% below an all-time high it hasn’t eclipsed in 18 months.
The reason may be speculation Trump’s homeward-looking policies will favor the more domestic-focused index.
At the same time, looser financial regulations touted by Trump could provide a relief to banks and insurers, which have a heavier weighting in the Russell 2000 than in the S&P 500.
While technology shares in the benchmark index finished the week up 1%, the sector slipped 1.6% on Thursday amid concern that Trump’s overseas trade policies would crimp profitability for a group that thrives overseas. All four stocks in the FANG block of Facebook, Amazon.com, Netflix and Google parent Alphabet showed losses for the week.
“They were simply a victim of a shift in sector leadership,” said Richard Sichel, chief investment officer at Philadelphia Trust Co, which oversees $2bn. “Investors took some profits and moved money into other sectors. It doesn’t necessarily mean tech is going to be a negative place to be going forward - it’s still a driver of productivity and represents exciting things ahead for the economy.”
Violent swings this week were almost too numerous to count. While bonds sold off and 10-year yields climbed above 2%, stocks whose high payouts have aligned them with fixed-income markets tanked. Utilities fell 4% on the week. Makers of consumer necessities dropped 2.1%. At the other end, encouraged that Clinton’s promises to investigate drug pricing are off the table, an S&P index of pharmaceuticals companies gauge jumped 11%, the most in data going back to 1999.
Individual stocks were no less volatile. Navient Corp, a servicer of student loans, jumped 28%, possibly reflecting speculation that regulatory pressure will ease on for-profit colleges now that the founder of Trump University is president.
Freeport-McMoRan jumped 26% as copper saw its biggest gain in seven years. Kohl’s Corp rose 24% after the department store chain’s third quarter earnings were 10 cents ahead of analyst per-share estimates. Martin Marietta Materials, which sells to the construction industry, added 19% on speculation infrastructure spending will jump.