Khan Capital | November 2024
Key Takeaways
- Trump’s decisive election victory triggered a historic rally: the Dow surged 1,507 points, all four major indices hit record highs, Bitcoin reached a new all-time high, and the dollar posted its best day in two years.
- The “Trump Trade” favoured financials, energy, small caps, crypto, and domestic industrials while punishing renewables, European exporters, and rate-sensitive assets as the 10-year yield rose 17 basis points to 4.4%.
- The divergence between equity euphoria and bond market caution reflects the central tension: tax cuts and deregulation are growth-positive, but tariffs and fiscal expansion are inflation-positive.
- The macroeconomic starting point in 2025 is materially different from 2017: higher debt-to-GDP (120% vs 76%), elevated inflation risk, and greater geopolitical volatility all complicate the Trump 1.0 playbook.
- Investors may wish to position for the pro-growth elements of the agenda while hedging against the inflationary and geopolitical risks that the post-election rally has largely discounted.
Part of: Tariffs & the Trade War — Khan Capital’s hub on tariffs and the trade war.
On 6 November 2024, financial markets delivered their verdict on the return of Donald Trump to the White House with emphatic clarity. The Dow Jones Industrial Average surged 1,507 points, or 3.57%, to a record high, logging its best session in two years and its first 1,000-point gain since November 2022. The S&P 500 rose 2.5%. The Nasdaq climbed 2.95%. The Russell 2000, tracking small and mid-cap companies, leapt 6% to its own all-time high. All four major indices closed at record levels on the same day. Bitcoin rocketed nearly 8% to a then-record $75,345. The US dollar posted its strongest day in two years. The “Trump Trade” was back, and it was moving with conviction.
The speed and decisiveness of both the election result and the market reaction stood in stark contrast to the contested, drawn-out 2020 count. By early Wednesday morning, it was clear that Trump had secured a commanding Electoral College victory over Vice President Kamala Harris. The S&P 500’s 2.5% jump marked the best post-election day in the benchmark’s history, according to Deutsche Bank.
| Asset / Sector | Election Day Move | Key Driver |
|---|---|---|
| Dow Jones | +1,507 pts (+3.57%) | Record high; best day in 2 years |
| S&P 500 | +2.5% (record high) | Best post-election day in history |
| Russell 2000 | +6% (record high) | Domestic-focused small caps surge |
| Bitcoin | +8% to $75,345 | Crypto-friendly regulation expected |
| Tesla (TSLA) | +15% | Musk/Trump relationship premium |
| JPMorgan (JPM) | +11.5% | Deregulation expectations |
| 10Y Treasury Yield | Rose to 4.4% (+17bps) | Fiscal expansion / inflation fears |
| US Dollar Index | Best day in 2 years | Tariff expectations / rate divergence |
| Renewables (FSLR, ENPH) | Double-digit declines | IRA subsidy rollback fears |
What the Market Is Pricing
The rally was not about political allegiance; it was about policy expectations. Markets were pricing three specific pillars of the anticipated Trump economic agenda.
Corporate tax cuts and deregulation. Trump campaigned on extending and expanding the 2017 Tax Cuts and Jobs Act. With Republican Senate control secured, the legislative pathway appeared clear. Financial sector stocks surged on expectations of lighter regulatory touch: JPMorgan rose 11.5%, Citigroup gained 8.4%, Bank of America climbed 8.4%, and Capital One surged 11.3%.
Energy deregulation and fossil fuel expansion. Trump’s stated commitment to expanding domestic oil and gas production pointed toward a materially different energy policy framework. Traditional energy stocks rallied, while renewable energy names sold off sharply. First Solar and Enphase Energy fell by double digits as investors priced in the potential unwinding of green energy subsidies.
Crypto-friendly regulation. Trump had pledged to make the United States the “crypto capital of the planet.” Bitcoin’s 8% jump to a record high reflected expectations of a dramatically more permissive regulatory environment. Coinbase surged 18%. Dogecoin jumped 17%.
The Sector Rotation: Winners and Losers
Clear winners: Financials led as deregulation expectations lifted the entire banking complex. Tesla surged nearly 15%, attributed to CEO Elon Musk’s close relationship with the incoming president. Defence contractors rallied on anticipated spending increases. Small-cap stocks outperformed dramatically, reflecting expectations that domestically-focused companies would benefit most from tariff protection. Private prison operators GEO Group and CoreCivic surged 42% and 29% respectively.
Clear losers: Renewable energy stocks bore the brunt. European equities underperformed sharply: the Stoxx 600 gained a modest 0.1%, Germany’s DAX fell 0.3%. European exporters face the prospect of new tariffs under Trump’s “America First” trade agenda.
The Bond Market Warning
While equity investors celebrated, the bond market told a more cautionary tale. The 10-year Treasury yield rose 17 basis points to 4.4%, a move that would prove prescient about the inflationary risks embedded in Trump’s policy programme.
The bond sell-off reflected three concerns: tax cuts without corresponding spending reductions imply larger fiscal deficits; tariffs function as a tax on imports that raises consumer prices; and immigration restrictions could tighten the labour market. This divergence between equity euphoria and bond market caution is the central tension of the Trump 2.0 investment landscape.
What the Market Is Misunderstanding
Policy execution risk is being underpriced. Markets are pricing Trump’s most market-friendly proposals (tax cuts, deregulation) as near-certainties while treating his most market-hostile proposals (broad tariffs, trade wars) as negotiating positions. Trump’s first term demonstrated a willingness to pursue aggressive trade policies even at the cost of market volatility.
The macroeconomic starting point is different. When Trump first took office in 2017, inflation was subdued and there was considerable economic slack. In 2025, the economy is near full employment, inflation has been recently tamed but remains above target, and federal debt-to-GDP has risen from approximately 76% to over 120%.
European and emerging market exposure may be repriced too aggressively. The sell-off in European equities and clean energy names may be overdone relative to the likely pace and scope of policy implementation. IRA rollbacks face congressional obstacles, and the global energy transition has its own momentum independent of US policy.
Geopolitical risk is barely priced. The rally focused almost entirely on domestic economic policy. JPMorgan analysts noted that under a “red wave” scenario, stocks stood to gain through year-end, but “the uncertainty around policy execution would become more prominent in 2025.”
Structural Interpretation: Trump 2.0 vs. Trump 1.0
The market’s enthusiastic response reflects a pattern familiar from 2016: investors pricing the pro-growth elements while discounting the risks. But the structural context has shifted. The US fiscal position is materially weaker. The geopolitical environment is far more volatile. And market concentration risk, with the Magnificent Seven accounting for an unprecedented share of S&P 500 market capitalisation, creates fragility that did not exist in 2017.
Implications for Investors
Financials and domestic-oriented industrials are the most direct beneficiaries of deregulation and tariff protection. Banks offer a combination of reduced regulatory burden and higher-for-longer interest rates that supports net interest margins.
Energy equities benefit from a more permissive drilling and pipeline approval environment, though global supply-demand dynamics remain the primary price driver.
Cryptocurrency enters a structurally more favourable regulatory environment. The appointment of crypto-friendly regulators may accelerate institutional adoption.
Fixed income faces headwinds from fiscal expansion and tariff-driven inflation expectations. Investors may wish to consider inflation-protected securities as a hedge against the stagflationary tail risk.
International diversification becomes both more important and more complex. European and emerging market valuations have been marked down on tariff fears, potentially creating opportunities for patient capital.
Conclusion
The market’s 1,500-point verdict on Trump’s return is clear in its enthusiasm but more ambiguous in its implications. Investors are pricing a pro-growth, pro-business policy agenda while discounting the inflationary, fiscal, and geopolitical risks that accompany it. The real test will come when campaign promises meet legislative reality, when tariff threats become tariff actions, and when the bond market’s inflation concerns collide with the equity market’s growth expectations.
Sources: CNN, CNBC, NBC News, NPR, CBS News
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Related Reading
For our analysis of how the new administration’s policy priorities translated into market positioning, see The Trump Trade 2.0: Sectors to Watch. As the presidency began, we covered the early policy moves in Trump 2.0 Begins: Tariffs, Immigration, and Market Policy Shifts. For the trade policy escalation that followed, see Trump’s Tariff Blitz: 25% on Mexico and Canada. For historical context on Trump-era fiscal policy, see our earlier coverage: Tax Cuts and Jobs Act: What Trump’s Tax Reform Means for Markets.
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