Post-election momentum

The US stock market wasted little time in reversing its late-October slump, posting its biggest weekly gain in a year amid a historic election that put Donald Trump back in the White House, and as the Federal Reserve cut interest rates for the second time this year.

After closing lower last Monday, it was straight up for the S&P 500 (SPX), which hit new all-time highs the final three days of the week:

The headline: Stocks embrace election, look ahead to inflation data.

The fine print: The week was a much choppier affair for the fixed income market. Bond prices plunged the day after the election as yields jumped to multi-month highs, but the market then abruptly reversed. Despite hitting 4.44% last Wednesday—its highest level since July 1—the 10-year Treasury yield ended last week slightly lower at 4.3%.

The number: 54%. As expected, the Fed lowered rates 0.25% to a target range of 4.5%-4.75% last week. The probability of another 0.25% cut in December stood at 65% on Friday, while the odds that the Fed would leave rates unchanged at its January meeting were 54%.

The move: The Russell 2000 (RUT) gained 5.8% last Wednesday—its biggest one-day increase since November 2022, and its second-biggest of the past 15 years that didn’t occur during the V-shaped rally off the March 2020 COVID sell-off low. It was also the small-cap index’s biggest up week since April 2020.

The scorecard: The Nasdaq 100 (NDX) tech index ran a semi-distant second:

Sector returns: The strongest S&P 500 sectors last week were consumer discretionary (+7.6%), industrials (+5.9%), and energy (+5.9%). The weakest sectors were consumer staples (+1.2%), utilities (+1.2%), and materials (+1.4%).

Stock movers: Singular Genomics Systems (OMIC) +66% to $22.31 on Monday, AppLovin (APP) +46% to $246.53 on Thursday. On the downside, PACS Group (PACS) -39% to $18.09 and Aviat Networks (AVNW) -35% to $13.70, both on Wednesday.

Futures: December WTI crude oil (CLZ4) jumped 2.9% to $71.47 last Monday, but ended the week less than $1 higher at $70.38 after a 2.6% Friday sell-off. December gold (GCZ4) fell $54.40 to $2,694.80 last week, thanks mostly to Wednesday’s $73.40 sell-off. Week’s biggest gains: November Micro ether (METX4) +16.6%, November Micro bitcoin (MBTX4) +10.6%. Week’s biggest declines: November VIX (VXX4) -24.1%, December palladium (PAZ4) -10.5%.

Inflation data and retail sales are highlights on the economic calendar:

●Monday: Veteran's Day (bond market closed)
●Tuesday: NFIB Business Optimism Index, New York Fed Consumer Inflation Expectations
●Wednesday: Consumer Price Index (CPI)
●Thursday: Producer Price Index (PPI)
●Friday: Retail Sales, Import Price Index, Empire State Manufacturing Index, Industrial Production and Capacity Utilization, business inventories

Traders get a look at some of the first high-profile retail names of earnings seasons:

●Monday: Apogee Therapeutics (APGE), Monday.com (MNDY), Biohaven (BHVN), Immunovant (IMVT)
●Tuesday: Axsome Therapeutics (AXSM), AstraZeneca (AZN), Shift4 Payments (FOUR), Home Depot (HD), Repligen (RGEN), Shopify (SHOP), Tyson Foods (TSN), Light & Wonder (LNW), Occidental Petroleum (OXY),Spotify (SPOT)
●Wednesday: Dole (DOLE), Beazer Homes (BZH), Cisco (CSCO), Helmerich & Payne (HP)
●Thursday: Advance Auto Parts (AAP), Dillard’s (DDS), Walt Disney (DIS), JD.com (JD), Macy's (M), Williams Sonoma (WSM), AST SpaceMobile (ASTS), Copart (CPRT), Oklo (OKLO)
●Friday: Alibaba (BABA), Spectrum Brands (SPB)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Although the election is over, there will still be plenty of discussion about how a new White House administration—and potentially, a revamped Congress—may impact the economy and markets.

Answers will only emerge over time. The stock market’s initial reaction last week was certainly bullish. The SPX’s 4.7% gain was its second-largest election-week return since 1960, trailing only the 7.3% surge after the 2020 election.

That followed the SPX’s 19.6% return through October—its biggest 10-month return leading up to an election since 1944.¹ And with the index currently up 25.7% for the year, it’s in a position to post one of its strongest election-year returns:

If the market outperforms to a similar extent next year, it would be uncharacteristic, at least in terms of the historical averages. The final column of the table shows the SPX had a positive return in 65% of the years following an election year (13 out of 20), which is less frequently than its percentage of positive returns (70%) in years that weren’t election years or the years after them. Also, the median return in years after election years was 9.8%—smaller than the 12.6% median return for all other years since 1944.

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¹ All figures reflect S&P 500 (SPX) monthly prices, 1944-2024. Supporting document available upon request.