Yesterday, Today & Tomorrow

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The S&P 500 and Russell 2000 had their best day after an election day ever recorded. The Nasdaq's 3% gain was the largest since the November 2020 election. The Dow Jones Industrial Average surged over 1,500 points. That was the 4th biggest 1-day point gain in history.

Coming off Wall Street's massive election rally, markets brace for today's Federal Reserve rate decision. Indicators of what the Fed might do show nearly 100% odds of a quarter-point cut today. Major indexes gained in overnight trading while Treasury yields stabilized in anticipation of this Fed move. Currently, the fed funds rate for large banks stands at a range of 4.75%-5% following a half-point cut made in September.

So, that captures the big news stories for yesterday and today. What can be expected in the market and economy looking ahead? It often helps to start by paying attention to what the stock market is telling us. Also, the Fed, investors, and American corporations and foreign ones alike should now be thinking ahead to the potential impact of President-elect Donald Trump's policies. His campaign promises, including tariffs, have already raised inflation concerns and a big reason why Treasury yields embarked on an epic rally over the last six weeks and hit four-month highs yesterday. Possible changes under a Trump administration have already raised questions about the Fed's next move. Chances of a rate cut in December slipped this morning to 68%, down from close to 80% a week ago. This matters. More attention will be paid to what Chairman Jerome Powell says for insight on the future path - less than what the Fed does today.

The financial markets are by their nature discounting mechanisms. As such they provide reliable and consistent insight about their future directions. Clear messages were telegraphed by the markets yesterday. Stocks gave one message, the bond market another. And, the cryptocurrency market still another. A loud and clear message from the stock market was own small cap stocks now. The small-cap index surged 6% in the premarket yesterday on an overnight boost from the Trump win. The index closed yesterday with its best day since 2022. Small-cap stocks were seen as potential winners under a second Trump presidency, as investors expect it would ease regulations on businesses, which tend to weigh more heavily on smaller businesses. The market signaled the same message during the week of the 2016 presidential election. Now, like then, Trump’s domestic focused agenda and deregulation policy are expected to increase small business confidence. The bond market's message was a solid tip to expect higher interest rates. Bonds dropped as rates popped. The 10-year Treasury yield jumped more than 14 basis points to trade at 4.433%, hitting its highest level since July as investors bet a Trump presidency would increase economic growth and potentially fiscal spending. The long bond market is down nearly 9% over recent weeks as rates have gone up. Even before the election results were in, the cryptocurrency market - led by bitcoin - has seen heavy buying on increased demand sparked by a pro-crypto President Trump.

The markets offer our the best source for future economic and investment outlooks. The information is free - interpreting it can be very expensive. Investment decisions based on the way markets are and not how you think they should be can improve the experience.

John J. Gardner, CFP®, CPM®
3860 Blackhawk Rd, Ste. 160
Danville, Ca. 94506
888.985.PLAN (7526)
https://blackhawkwealthadvisors.com/

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