Market Insights

Stocks set new records in November after electoral wins by Donald Trump and the Republicans spurred hopes for deregulation and tax cuts.

The S&P 500 rose 5.7 percent between Thursday, October 31, and Friday, November 29. It was the biggest monthly gain in a year, pushing the index above 6,000 for the first time ever. Every major sector advanced, along with 77 percent of the S&P’s member stocks.

The election (and subsequent cabinet nominations) had several impacts on stocks. First, investors anticipate looser regulation of banks and Wall Street. Second, hoped-for tax cuts are expected to spur economic growth. Those beliefs supported cyclical corners of the market like financials, industrials and consumer discretionaries.

Consumer discretionaries got a further boost from Tesla (TSLA), the sector’s No. 2 company. The EV maker surged given CEO Elon Musk’s close relationship with the incoming administration. TSLA is also benefiting from increased focus on its self-driving vehicles.

Cryptocurrencies were another major theme because Trump has spoken in favor of digital assets. Bitcoin broke out to new record highs above $95,000, lifting related stocks like MicroStrategy (MSTR).

Tesla (TSLA), daily chart, with select indicators and patterns.

Small Caps and Rotation

The Russell 2000 small cap index rallied 11 percent, its best month since December 2023. This corner of the market has lagged for years as investors focused on megacap growth names like Nvidia (NVDA) and Microsoft (MSFT). Some strategists think it may gain traction as money managers look for broader economic growth and the potential for more takeover activity.

In another potential sign of market rotation, TradeStation data shows the advance/decline line on the S&P 500 hitting a new high last Friday. That potentially reflects money shifting away from the largest companies like NVDA.

Speaking of NVDA, the semiconductor company drifted lower despite reporting strong quarterly results. The AI giant has rallied more than 1,000 percent since October 2022. Is it finally losing momentum?

Energy stocks also gained on hopes of fewer drilling restrictions, but crude oil struggled because global supplies may increase. (There could be big news on that subject this coming Thursday as OPEC+ countries meet.)

Tariffs, Vaccines

While optimism about a second Trump Administration lifted most stocks, some companies fell.

Vaccine makers like Moderna (MRNA) plunged after critic Robert F. Kennedy Jr. was nominated as Secretary of Health and Human Services. Defense contractors slid on worries about potential budget cuts. General Motors (GM) also had its biggest one-day drop since 2020 after Trump’s tariff plans threatened to increase the cost of imported parts from Mexico.

Semiconductors, which led the market by a wide margin in the first half of 2024, lagged the S&P 500 for the fifth straight month. Concerns about restricted trade with China have hurt sentiment. However the bigger story could be rotation away from chips in favor of smaller growth stocks. In particular, investors seem to be moving toward software companies like Palantir (PLTR) and cloud-based service providers like Shopify (SHOP).

Gold miners and solar energy were other laggards in October. Precious metals weakened as investors positioned for stronger economic growth. Solar fell because Trump isn’t considered a supporter of green energy.

S&P 500, daily chart, with select indicators and patterns.

The Week Ahead

This week brings a few important economic events and earnings. Other catalysts in December, like the Federal Reserve meeting, are listed in the table below.

The Institute for Supply Management’s manufacturing index is due this morning. It’s been in contraction almost every month for the last two years. Could it show an improvement after the election? New orders could be an especially important component to watch.

The UBS Global Technology and AI Conference runs from Tuesday through Thursday, which could impact various technology companies. NVDA and Arista Networks (ANET) present on Tuesday. Saleforce.com (CRM) also reports earnings.

Wednesday brings ADP’s private-sector payrolls report, ISM’s service sector index and crude oil inventories. Dollar Tree (DLTR) and Foot Locker (FL) report earnings.

Thursday’s big items include initial jobless claims and the OPEC+ meeting. Kroger (KR), Lululemon (LULU), Ulta Beauty (ULTA) and HP (HPQ) announce quarterly results.

The Labor Department’s employment’s key employment report is on Friday morning. Consumer sentiment could be another important item that could provide early indications of the election’s impact on the economy.

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