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U.S. equity futures extended gains in early Thursday trading, while the dollar peeled back from its strongest single-day gain in two years, as investors looked to reset forecasts for growth, inflation and Federal Reserve rate cuts following the likely ‘Red Sweep’ election victory for former President Donald Trump.
Stocks surged on Wednesday, lifting all three major benchmarks to fresh all-time highs, lead by a 1,500-point advance for the Dow Jones Industrial Average that extended its 2024 gain to just under 16%.
Bank stocks paced the advance, with the financial sector notching its best gain in two years, as investors bet that looser regulations would stoke merger activity and allow for freer lending and fewer balance sheet restrictions.
The prospect of a second Trump administration, however, coupled with what appears to be Republican control of both House of Congress, has investors concerned over the size of next year’s Federal Budget. Trump’s vow to impose massive tariffs on imported goods its also seen as likely to revive inflation pressures while slowing domestic and global growth prospects.
“Whether this rally will be short-lived remains to be seen,” said Lindsay James, investment strategist at London-based Quilter Investors.
“Lower corporate taxes and lighter regulation might be early wins for business, but there are long-term dangers, including potential interference at the Federal Reserve and inflationary pressures from trade tariffs and mass deportations, which could significantly impact ordinary Americans,” she said. “Ironically, Trump’s supporters, who have blamed inflation for making them poorer under the Biden administration, might face further economic challenges.”
“It could be a case of ‘buy now, pay later’ with bond yields already climbing and a strong dollar hurting exporters who will soon likely face their own barriers to trade as countries retaliate,” she added.
Fed Chair Jerome Powell will guide markets on the central bank’s rate path later this afternoon.
Chip Somodevilla/Getty Images
That’s lead to a major, an ongoing selloff in the bond market, with benchmark 10-year note yields now more than 80 basis points higher than they were when the Fed made its outsized half-point rate cut in September.
Benchmark 10-year note yields were holding steady at 4.426% heading into the start of New York trading, but a mixed auction of $25 billion in 30-year bonds yesterday, which saw a big pullback from foreign buyers, hinted an near-term risks for the $27 trillion market.
Rate-sensitive 2-year note yields were last marked at 4.241% while the U.S. dollar index slipped 0.18% against a basket of its global peers to 104.891.
Focus in Thursday’s session is likely to switch to the Fed’s November rate decision, expected at 2:00 pm Eastern time, and its projections for policy heading into the final month of the year and beyond.
Traders fully expect the Fed to deliver on another quarter-point cut today, taking the Fed Funds rate to between 4.25% and 4.5%, but are paring bets on a December reduction given the new fiscal and trade policy risks from the Trump administration.
Related: Trump election win may put Fed interest rate cuts at risk
Heading into the start of the trading day on Wall Street, futures contracts tied to the S&P 500, which closed at a record high 5,929.04 points last night to extend its year-to-date gain to around 21.2%, suggest a modest 10 point opening bell gain.
The Dow, meanwhile, is called 115 points higher with the tech-focused Nasdaq priced for a 40 point gain.
Qualcomm (QCOM) shares were a notable early mover, rising 8.2% to $187.10 each after the chipmaker posted stronger-than-expected fourth quarter earnings and issued a solid near-term forecast.
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In overseas markets, Britain’s FTSE 100 was marked 0.05% higher in early London trading ahead of a Bank of England rate decision later in the session.
Traders expect a quarter point reduction in the key Bank Rate, only the second in two years, but stubborn inflation pressures could prevent the central bank from further cuts into early 2025.
Overnight in Asia, the regional MSCI ex-Japan benchmark rose 0.78% into the close of trading, while Japan’s Nikkei 225 ended 0.25% lower in Tokyo.
Related: Veteran fund manager sees world of pain coming for stocks
