On Wednesday, the USA stock market once again hit a new all-time high, $S&P 500 Index (.SPX.US)$ hovering around 5930 points, marking the 48th historical high so far this year. $NASDAQ 100 Index (.NDX.US)$ Rising by 2.7%, setting a first record since July. $Dow Jones Industrial Average (.DJI.US)$ Climbing by 3.6%. U.S. 10-year treasury notes yield surged, the USD achieved its best performance since 2022, investors made predictions on the possibility of Trump reclaiming the presidency and Republicans winning both houses of Congress.

The s&p 500 index rose by 2.5% because the market bet that the newly elected president would introduce policies to promote growth, thus boosting American businesses. Data compiled by Birinyi Associates Inc. and Bloomberg showed that the s&p 500 index had its best performance after the election. Small-cap stocks surged by 5.8% as the market speculated that they would benefit from Trump's protectionist stance, while bets on tax cuts and reduced regulations boosted bank stocks. Insurance companies focusing on Medicare market saw a spike in anticipation of the new government paying higher rates to companies providing American private healthcare plans for senior citizens.

Wall Street's 'fear index' VIX saw its largest drop since August. Nearly 19 billion shares traded on U.S. exchanges, 63% higher than the average daily trading volume of the past three months. The Dow Jones Transportation Average soared to a new high after three years without setting a new record, ultimately confirming the strong performance of its industrial index. For followers of the Dow Jones Theory of investment, this breakthrough serves as a bullish signal. The theory suggests that synchronized upward movements of both indicators signal a better outlook for the entire market.

David Bahnsen, Chief Investment Officer of The Bahnsen Group, said: 'Currently, investors' sentiment is in favor of growth, regulation, and the market. There is also an assumption that merger activity will accelerate, more tax cut policies will be introduced, or existing tax cut policies will be extended. This creates a strong backdrop for the stock market.'

U.S. bond yields surged across the board, with longer-term bond yields leading the way, as traders scaled back bets on the extent of the Fed rate cuts. Investors doubled down on bets that policies such as tax cuts and tariffs might trigger price pressures. These measures also indicate concerns that Trump's proposals could exacerbate budget deficits, stimulating an increase in bond supply.

The yield on the U.S. 10-year Treasury notes rose by 17 basis points to 4.44%. The U.S. dollar index increased by 1.3%, with the Japanese yen leading the declines among major currencies, while the Euro fell by 1.8%. The Mexican Peso remained nearly flat after a 3.5% drop. Bitcoin, seen by many as the so-called Trump trade due to his support for digital assets during the campaign, hit a historic high. Commodities were under pressure, with gold, copper, and oil prices trending downwards.

'The biggest takeaway from last night is that we've gained the certainty the market desires,' said Ryan Grabinski of Strategas. 'This will boost confidence for both businesses and consumers. The focus should now shift to tomorrow's Fed meeting. The 10-year treasury yield is nearing the 4.5% level, a level that has caused some trouble for risk assets in the past 24 months.'

Keith Lerner from Truist Advisory Services Inc. mentioned that many investors were preparing for long-term uncertainty, and the clarification of results relieved them. He mentioned that the current market seemed more focused on the positive aspects of the Trump agenda and less on potential tariffs and broader policy outcomes.

He noted: 'Despite the complex market backdrop, factors such as interest rates, deficit concerns, the possibility of fewer Fed rate cuts, and tariffs could ultimately offset upward price movements today. However, the market is pricing in most bullish factors. Nevertheless, a significant amount of evidence in our work indicates that the bull market still has some duration, and we adhere to the upward trend in the primary market.'

Thierry Wizman of Macquarie warns traders to not push the "yield story" too far, suggesting that if Trump brings surprises in the next few months (at least relative to exaggerated expectations), it will be about fiscal restraint rather than fiscal irresponsibility. When the market realizes this, long-term U.S. bond yields may stabilize or decline.

Mark Haefele from UBS Global Wealth Management believes that the bond sell-off has gone too far. He expects the Fed to continue on the path of lowering interest rates.

There is a general expectation that Fed officials will cut the benchmark interest rate by 25 basis points on Thursday, which would be another move after cutting rates by 50 basis points in September. Based on the median estimates released in September, they expect another 25 basis point cut in December this year, and another one percent cut in 2025.

"The Fed is still likely to cut rates by 25 basis points at Thursday's meeting, with a possibility of another cut in December," said Yung-Yu Ma from BMO Wealth Management. "By 2025, we believe there may only be two to three rate cuts for the whole year, depending on the combination of policy and economic growth."

The hope for Democrats to control the U.S. House of Representatives is fading, with Republicans gaining confidence in uniting control of Washington before next year's tax-cut and spending battles.

Democrats only need a net gain of four House seats to regain a slim majority from Republicans, but the victories in Pennsylvania, Michigan, and North Carolina have compensated for the loss in New York, putting the party far ahead in the race for control of the House.

According to Sam Stovall from CFRA, a Republican-controlled "red wave" of the executive and legislative branches has only occurred eight times since World War II. In such cases, the S&P 500 index saw its highest average annual price increase of 12.9% during Republican presidencies, with a rise frequency of 75%. The best returns during Democratic presidencies occurred six times when Congress was split, with the S&P 500 index averaging a 16.6% increase, rising 83% of the time.

"Assuming the House goes to the Republicans, we expect the outcome of the 'red wave' to be similar to 2016, but due to a more mature economic backdrop and higher stock valuations, the extent will be somewhat lower," said Jeff Schulze from ClearBridge Investment. "Trump's pro-business attitude may reignite the animal spirits of companies."

Schultz said that this may bring a stronger capital expenditure and investment environment. A more favorable corporate tax system, the comprehensive postponement of the Tax Cuts and Jobs Act, and looser regulatory measures should be able to offset the potential adverse effects of increased tariffs and reduced immigration on corporate profits.

Schultz pointed out: "We expect that in the coming months, cyclical industries will continue to maintain a leading position, as the market anticipates stronger economic growth, and the profitability of these companies will be higher than current pricing."

Ma of Bank of Montreal stated: "Favorable macro drivers still dominate, the prospect of a Republican sweep and tax cuts has also increased market enthusiasm. In the coming weeks, more details on tariff policies or a sustained increase in long-term treasury yields may alleviate this situation, but for the past two years, we have been saying that the current environment is favorable for risk-taking, and that remains the case."

Additionally, he also pointed out that a Republican sweep may extend individual tax cut policies, but this is only a minor bullish factor for the stock market.

Ma summed up: "The significance of corporate tax cuts is much greater, although some have promised to do more work in this area, the tax provisions are not clear, including requiring companies to keep production operations in the USA."

The stock market surge triggered by Trump's victory is triggering buy signals for rule-based investment funds, adding fuel to the rally.

Goldman Sachs' strategic expert, Scott Rubner, wrote in a report to clients on Wednesday: "The rebound by the end of this year will start today and may exceed investors' expectations." Behind this, he listed factors such as "removing election hedges, levering up again, buybacks, FOMO (fear of missing out), Vanna," among others. Vanna is a buying behavior related to the regular expiration of option contracts.

Nomura's analysis shows that volatility control funds are expected to buy $50 billion in U.S. stocks next month, totaling $110 billion by January.

Ryan Detrick of Carson Group said: "The market hates uncertainty, now that the election is officially over, the stock market soared today. Optimism about tax cuts, the continued dovish stance of the Federal Reserve, and the potential economic turnaround are all reasons, but the reality is that the economy has been quite robust all year, so this is really nothing new. Our view is returning to a normal bull market."

At Ameriprise, Anthony Saglimbene said that with the suspense of the election eliminated, investors hope to put excess cash into the stock market, and animal spirits will drive major averages higher at year-end. "Finally, the U.S. stock market may be influenced not only by the election results but also by volatility hedging. As earnings season winds down, companies will emerge from blackout periods, and the strong seasonal factors in the fourth quarter (especially in election years) will come into play."

Chris Senyek of Wolfe Research stated: "By the end of the year, he remains bullish on the stock market. With Trump's win in the 47th U.S. presidential election, we believe the market will strongly favor financials, U.S. industrial (transportation), energy, and cryptos today and by year-end. We think more aggressive tech stocks will also perform well. By style, we will hold value, equal weight, small caps, and underperforming stocks year-to-date."

Editor/rice