Markets with Megan

"The Results Are In!" In this episode, Megan Horneman, Verdence CIO, dives into the market's response to the recent presidential election, where Donald Trump was elected as the 47th President of the United States. As the Republican Party gained control of the Senate and is on track to secure the House, markets responded with a historic rally, with the Dow Jones surging over 1,000 points. Specific sectors are benefiting from these political shifts, such as financials, industrials, and energy, as investors anticipate regulatory rollbacks and policies favoring economic growth. Drawing parallels to the 2016 election, Megan analyzes how small-cap stocks and other domestically focused companies are reacting positively to Trump’s anticipated economic policies while the bond market reflects inflation concerns due to potential tariff-related policies.

Get a quick analysis of what this political landscape could mean for the Federal Reserve's approach, particularly with its expected interest rate cut. The discussion covers key points around the stability of the Senate, the likely preservation of the filibuster, and how this could influence President Trump’s appointments to federal agencies. With early signs of optimism balanced by caution around inflation and consumer challenges, the episode underscores the importance of ongoing market monitoring as these policy directions unfold. Join us as we dissect the election’s impact on the markets and provide insights on how the markets may navigate this new administration.

The results are in and the markets surely do like it. It is Wednesday, ovember the 6th, and we're looking at a tremendous rally in the equity market after we got the results from the presidential election last night. So, as everybody knows, president Donald Trump was named the 47th president, and what we're seeing today in the market is a reaction that's very similar to what we saw in 2016. Now, it's still very early. The Senate also flipped to the Republican Party. The House is still being decided upon, but it is looking like it will go to the Republicans as well, so it'll be a full sweep by the Republican Party. Now what does this mean? Going forward? Well, first of all, let's focus on what's happening today and why the market's rallying the way that it is. Today, we're seeing the Dow Jones up. It's up over 1,000 points. This is the biggest point day move we've seen since March of 2020. But what we're also seeing is some big moves in the small cap space the Russell 2000,. The Russell 2500 as well, rallying In the S&P 500,. The sectors that are benefiting the most from these results have been financials, industrial and energy, with real estate and staples being the main sectors that are negative for the day. This looks.

If you go back and look at the week of the election in 2016, it was a very similar story. We saw rallies in small caps, we saw sell-off in bonds, we saw rallies in the mid-caps as well, and the market right now is focusing on a couple things that Trump campaigned on. First of all, he's talked a lot about loosening regulations. That's why you're seeing things like financials, energy and industrials. They're doing well. Looser regulations he worked on this in 2016 as well as kind of pulling back some of the Dodd-Frank laws, so this is beneficial for the financials. The small caps tend to be more domestic oriented companies, so they're rallying because the hope is there'll be better economic growth and they're not as tied to the risk of tariffs that Trump has campaigned on as well.

Now, as we look forward, we'll continue to monitor what's going on with the House and the Senate and try and get some more indication on what Trump's first focuses will be. We know what he has campaigned on. We do know one thing he does want to fix the economy. That's what he's talked about, but there is quite a bit to fix here from an economic standpoint, so we're not rushing in to jump into this rally in the equity market right now. What we're going to do is we're going to see how these economic data points continue to work themselves out and what policies he's going to put forward in the first few months that he's in office.

But there, as I mentioned, there still is a lot that needs to be fixed. The consumer is still struggling. It's one of the reasons why he got elected because that was one of the focuses from consumers was inflation in the economy and then again inflation. This is a concern because not only would Trump be walking a fine line with spending or tax cuts, but, similar to the Federal Reserve, inflation is still sticky. We still have an inflation issue, so we have to be very careful that we don't reignite that by putting forth some big spending initiatives in the first year.

Now, what we're seeing in the bond market is telling us just that that there is a fear here from an inflation standpoint. We've seen a pretty big sell-off in bonds, meaning yields have shot up significantly today because of this. We also saw this in 2016, because the view is that Trump's policies are inflationary and tariffs can be inflationary. But what does he end up actually doing? There's a lot that gets campaigned about. He end up actually doing. There's a lot that gets campaigned about. Sometimes he used these as almost bargaining mechanisms as well, so we're not sure exactly what will get done from a tariff standpoint, but the bond market's telling us be careful. It's inflationary. So again, it's something that could be troublesome for the Fed. And also Trump needs to watch from what he ends up getting through. Now let's talk a little bit about what it means to get control of the Fed, and also Trump needs to watch from what he ends up getting through.

Now let's talk a little bit about what it means to get control of the Senate. So basically, getting control of the Senate means that the filibuster is going to stay. They do get to oversee the federal budget. We know that's going to be a big discussion early next year. The one thing that gives the power to the Republicans as well with holding the Senate is that the Senate has the ability to approve or reject the presidential appointees for different agencies. So President Trump, being that he has that Republican Senate, will be able to appoint those that he wants to without much objection, and we'll keep an eye on the House to see what happens there. But even with the Republicans winning that, it still will be a pretty small margin, so just keep that in mind as well.

Now it's very early. We'll continue to update and offer insight. We'll look at our portfolios, see if there's adjustments that need to be made, but for today we're just going to focus on the fact that the market's rallying on, the first of all, the fact that this election was not close. This was, I think, a surprise. At how much it was. I guess you could say a landslide. This is something that the markets would have been more uneasy if it was. I guess you could say a landslide. This is something that the markets would have been more uneasy if it was. A tight election in this, drugged on for several days. So this was pretty much a landslide from the Republican Party. So I think that's another reason why the markets are rallying today, because any uncertainty is put behind us. We know what's ahead of us now.

We'll be back tomorrow. We'll get the Federal Reserve meets tomorrow and they will set interest rate policy. They're widely expected to cut interest rates by 25 basis points. We think they still will. We don't think yesterday's election will have anything to do with that, but we'll be watching that statement closely. Will they be insinuating that, hey, we've gotten some good economic data lately. We've gotten a strong rally from the equity perspective. We've got a big backup in yields. What will they have to do going forward? Are they still on the path of having aggressive rate cuts through next year? That's all we have. If you like this podcast, please hit that subscribe button, hit the alarm bell, share it with friends, family or colleagues and, as always, if you'd like any of our past podcasts, you can go to marketswithmeganfm. Thank you.