The stock market reacted sharply to Republican Donald Trump’s victory over Democrat Kamala Harris on Wednesday, propelling the Dow, S&P 500, and Nasdaq to record highs. This positive trend continued on Thursday when the Fed’s rate cut further energized market optimism.
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While the Dow remained stable, the S&P 500 and Nasdaq recorded gains, with the Dow surpassing 44,000 and the S&P 500 topping 6,000 on Friday for the first time. By week’s end, all three major indices closed at new record highs.
Over the week, the Dow and S&P 500 both surged by over 4.6%, marking their strongest weekly performance this year and their first positive outcome in three weeks. The Nasdaq, led by the tech sector, rose 5.7%, its most significant weekly increase since September. The top-performing sectors included consumer discretionary, energy, industrials, financials, and information technology.
During the week, we made adjustments in our holdings, reducing our position in Honeywell by selling shares three times as the stock showed strength. Jim Cramer emphasized that this reduction would prevent any undue impact on our portfolio.
When Wells Fargo and Morgan Stanley surged in double digits post-election, we followed our strategy and took some profits. We also increased our position in BlackRock, reallocating funds from other financial stocks that didn’t fully participate in Wednesday’s rally, recognizing BlackRock’s strong position as the world’s largest asset manager.
In our analysis last weekend, we suggested that the primary market risk wasn’t tied to the election winner but rather the decisiveness of the outcome—and that’s exactly what materialized. Historically, Wall Street has favored a balanced, split government, often yielding market stability when power is divided between parties.
With the presidential outcome now clear and the Senate flipping to Republicans, some House races remained too close to call. According to NBC News, Republicans needed to secure six seats to gain a majority.
The future balance of power will likely influence the market, with the potential for Trump to monitor market trends closely, as he has often used performance as a gauge of success. During his first term from 2017 to 2021, the S&P 500 rose 67%. President Biden and Vice President Harris are positioned to pass Trump a robust economy with easing inflation and a healthy stock market.
Looking forward, two major government inflation reports are set to release, capturing Wall Street’s and the Federal Reserve’s attention. The earnings season is also winding down, with only two companies of particular interest, Home Depot and Disney, releasing quarterly results.
Economic Indicators
A key economic report for the week, the October Consumer Price Index (CPI), will release before markets open on Wednesday. Estimates from FactSet suggest a 2.6% annual rise in headline CPI, slightly higher than September’s increase. The core rate, excluding volatile food and energy prices, is expected to match last month’s 3.3% year-over-year rise. The shelter component will be crucial, as housing costs have shown persistent inflation.
On Thursday, the October Producer Price Index (PPI) will also be released, providing insights into wholesale costs. While PPI data isn’t as closely watched as CPI, it indicates input costs for companies and could signal potential price adjustments to protect profit margins. FactSet forecasts a 2.3% annual increase in headline PPI and a 2.9% rise in the core rate.
Additional data releases for October retail sales and industrial production on Friday will further inform economic trends. Retail sales offer a snapshot of consumer spending, which accounts for around two-thirds of the U.S. economy, while the industrial production report sheds light on manufacturing, mining, and utilities performance.
Corporate Earnings
Home Depot will report its third-quarter earnings on Tuesday before the market opens. Investors are watching for insights into the housing market, as rising bond yields have pushed mortgage rates up, potentially delaying gains in housing-related product sales.
However, Thursday and Friday saw bond yields decline, which could relieve pressure on housing. With potential rate cuts by the Fed in December, Home Depot may benefit from an eventual rebound in housing demand. Analysts expect third-quarter revenue of $39.24 billion and earnings per share of $3.64 for Home Depot.
Additionally, post-hurricane rebuilding efforts from hurricanes Helene and Milton may bolster Home Depot’s sales in the current and future quarters.
Disney is set to release its earnings on Thursday morning. A focus will be on Disney’s experiences segment, which has softened due to recent hurricanes affecting Florida’s theme parks and inflation-conscious consumers. Disneyland Paris may also show declines due to the Summer Olympics held in Paris during the quarter.
However, Disney’s direct-to-consumer business shows promise as profitability improves. Anticipated high-content releases, including the new season of The Bear and the box office hit Inside Out 2, should drive subscriber growth. Analysts expect Disney’s fourth-quarter revenue to be $22.44 billion, with earnings of $1.10 per share.
As the market absorbs these data points and corporate earnings, investors will look for signs of resilience in the economy and stability in corporate profits as the end of the year approaches.
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