A New Boost for Markets: Trump Victory Revives Investor Optimism

Before We Begin

The re-election of Donald Trump as President of the United States has had a notable impact on North American financial markets, sparking renewed optimism among investors this week. This movement recalls the “Trump Rally” of 2016, when his first election drove significant market growth. At that time, Trump’s promises to massively reduce taxes and deregulate the financial sector boosted investor enthusiasm, resulting in a market rally that lasted over three years until the COVID-19 pandemic triggered a market collapse in 2020.

Trump’s new promises of tax cuts and deregulation continue to attract investors, who see them as potential growth drivers for the economy and corporate profits. For example, a proposed reduction in the corporate tax rate from 21% to 15% could alleviate the tax burden on companies and encourage investment.

Market enthusiasm could continue in the short term, supported by investor sentiment and the traditional year-end “Santa Claus Rally.” However, the sustainability of this rally will depend on Trump’s initial decisions, notably the composition of his cabinet, set for January. The potential nomination of Jamie Dimon, CEO of JPMorgan Chase, as Treasury Secretary is viewed positively by markets, although questions remain regarding the competence and independence of Trump’s team.

In sum, Donald Trump’s victory has given a positive boost to financial markets through growth prospects and fiscal support, though this dynamic remains contingent on upcoming political decisions and potential economic pressures. Investors can be reassured by the current climate while staying mindful of medium- and long-term implications.

Your Portfolios in Brief

Founded in 1998, Alphabet, the parent company of Google, specializes in online searches, digital advertising, cloud computing, and, more recently, artificial intelligence (AI) technologies. With a presence in over 200 countries and more than 190,000 employees, Alphabet remains a pillar in the global tech sector.

Key Highlights in 2024

• Third-Quarter Results: Alphabet exceeded market expectations with record revenue of USD 88.3 billion in Q3 2024, surpassing the forecast of USD 86.4 billion. Advertising revenue, the core of its business, amounted to USD 65.9 billion, above the projected USD 65.4 billion. This quarter also marked Alphabet’s highest net income to date, at USD 26.3 billion (USD 2.12 per share), far outpacing the forecasted USD 1.85 per share.
• Cloud Expansion: The Google Cloud segment contributed significantly to growth, generating USD 11.35 billion, up nearly 35% year-over-year. Adoption of AI-based solutions for enterprises is a key driver of this growth, strengthening Alphabet’s competitive edge in this rapidly expanding sector.
• YouTube and AI: YouTube, generating USD 8.92 billion in advertising revenue, also showed an improvement over forecasts, benefiting from AI-enhanced content recommendations. This technology personalizes recommendations more effectively, boosting user engagement amid competition from platforms like Netflix, TikTok, and Amazon.
• AI Reorganization and Innovation: Alphabet has implemented several internal reorganizations to intensify its AI development, integrating the Gemini app team within Google DeepMind. CEO Sundar Pichai highlighted that AI now operates at scale across Google’s products, creating a “virtuous cycle” of growth and innovation.

Why It’s a Stock to Watch

1. Impressive Financial Performance: With record revenue and profit figures, Alphabet demonstrates resilience and consistent growth despite significant AI-related expenditures. This strong performance attests to the strength of its business model centred on advertising and cloud services.
2. Revenue Diversification and AI Leadership: Alphabet is diversifying its revenue streams beyond advertising, expanding in cloud services and integrating AI across its offerings. Its 25% global market share in digital advertising and innovations in Google Search and YouTube reinforce its leadership.
3. Focus on Opportunities and Cost Optimization: Alphabet aims to improve its profit margins by using AI to reduce costs and optimize operations. These streamlining efforts enable the company to invest more in future-oriented sectors like cloud and AI, supporting long-term growth.

Conclusion

At Pratte Portfolio Management, we firmly believe in Alphabet’s potential. Its leadership in information and artificial intelligence technologies, coupled with strong growth prospects, makes it a strategic choice for our portfolio. Alphabet shares also benefited from the optimism surrounding Donald Trump’s re-election, gaining over 3% at Wednesday’s open.

Though concerns persist regarding antitrust inquiries and AI expenses, experts remain optimistic. Alphabet underperformed the S&P 500 over the past 12 months, with a 37% gain compared to the index’s 40%, but its financial strength and innovative initiatives, such as the reorganization with DeepMind and the growth of Google Lens, are seen as catalysts for a rebound. The company is well positioned to maintain its place in an increasingly competitive tech landscape.

The strengthening of the tech sector underscores the value of holding Alphabet in our portfolio as the company continues to innovate and position itself at the heart of the digital economy. As of Thursday morning, the stock is up 27% year-to-date.

Markets in Brief

Monday

• Dow Jones: The index fell 0.61% to close at 41,794.60 points, with a loss of 257.59 points.
• S&P 500: The broad index decreased by 0.28%, ending at 5,712.69 points.
• NASDAQ: The NASDAQ also declined, dropping 0.33% to reach 18,179.98 points.

Nvidia Prepares to Join the Dow

Shares of Nvidia closed up 0.5% following the announcement of its inclusion in the Dow Jones, replacing Intel. This change reflects Nvidia’s strong performance, which has surged 174% since the beginning of the year. Intel, meanwhile, continues to face challenges in the artificial intelligence race, losing over half its value in 2024.

Financial and Healthcare Sectors Down

The financial and healthcare sectors ended the session lower. Goldman Sachs fell by 1.5%, while UnitedHealth Group dropped 1.7%. These declines reflect uncertainties surrounding the elections and speculation over another rate cut.

Stocks in Brief

• Nvidia (+0.5%): Increased in anticipation of its addition to the Dow Jones.
• Talen Energy (-1.2%): Impacted by the rejection of its nuclear extension request.
• Goldman Sachs (-1.5%): Affected by pre-election concerns in the financial sector.
• UnitedHealth Group (-1.7%): Decline in the healthcare sector.
• ExxonMobil (+1.3%): Supported by rising oil prices.
• S&P/TSX (+0.90 points): The energy sector supported the index, offsetting losses in telecommunications. Oil prices rose by USD 1.98, reaching USD 71.47 per barrel, contributing to the resilience of the TSX.
• Canadian dollar: The Canadian dollar was trading at 71.97 cents USD, up from 71.78 cents USD on Friday.
• Oil and Natural Gas: Oil prices rose nearly 3% after Saudi Arabia and other producers decided to delay production increases. Natural gas futures also jumped by 12 cents USD, reaching USD 2.78 per million BTUs.
• Gold and Copper: Gold prices dropped by USD 3.00, settling at USD 2,746.20 per ounce, while copper increased by six cents to reach USD 4.43 per pound in December.

Tuesday

• Dow Jones: The index climbed 1.02% to close at 42,221.88 points, gaining 427.28 points.
• S&P 500: The broad index rose 1.23% to reach 5,782.76 points.
• NASDAQ: The NASDAQ increased by 1.43%, closing at 18,439.17 points.

Nvidia and Tech Giants in Full Swing

Nvidia shares jumped 2.84%, driven by growing demand for its AI-focused GPU chips. Other major tech stocks followed the upward trend, with Broadcom up 3.17%, Intel rising 3.55%, and Amazon increasing by 1.90%.

Tesla and Banks Rise Ahead of Election Results

Tesla saw its shares rise 3.5%, driven by positive outlooks regardless of the election outcome. Banks also recorded gains, with the SPDR S&P Bank ETF (KBE) up 1.6%, as investors anticipate potential deregulation under a Republican administration.

Stocks in Brief

• Nvidia (+2.84%): Increased due to strong demand for its advanced AI technologies.
• Tesla (+3.5%): Rising in anticipation of benefits under either a Republican or Democratic administration.
• SPDR S&P Bank ETF (KBE) (+1.6%): Increased due to potential deregulation.
• Broadcom (+3.17%) and Intel (+3.55%): Increased, driven by optimism around tech and semiconductors.
• Apollo Global Investment (+7.06%): Jumped following better-than-expected results.
• Marathon Petroleum (+3.19%): Benefited from positive results despite contracting margins.
• Boeing (-2.62%): Down despite the end of a strike and a new wage agreement.
• Cleveland-Cliffs (-11.44%): Sharp decline following disappointing results amid weak steel prices.

Wednesday

• Dow Jones: The index jumped 3.57% to close at 43,729.93 points, marking an increase of 1,508.05 points.
• S&P 500: The broad index gained 2.53%, reaching 5,929.04 points.
• NASDAQ: The NASDAQ climbed 2.95%, closing at 18,983.47 points.

Tech and Financial Stocks Lead the Way

Tech stocks led the day with impressive gains in semiconductors. Nvidia rose 4%, Broadcom gained 3.27%, AMD climbed 2.41%, Micron increased 6.04%, and Intel surged 7.48%. Tesla shares jumped 14.75%, supported by Elon Musk’s longstanding alliance with Trump.
Financial stocks also benefited, with investors hoping for increased deregulation in the sector. JPMorgan Chase rose 11.64%, Goldman Sachs climbed 13.10%, Bank of America increased 8.54%, and Wells Fargo jumped 13.35%.

Oil Sector Rises, Renewables Struggle

Oil stocks also recorded gains with the prospect of a fossil fuel-friendly energy policy. Chevron gained 2.81%, ConocoPhillips rose 4.05%, ExxonMobil increased 1.72%, and EOG Resources climbed 4.17%. In contrast, renewable energy stocks suffered: NextEra Energy dropped 5.25% and First Solar fell 10.13%. Trump has promised massive expansion in oil and gas drilling, in opposition to the environmental policies of the previous administration.

Rising Bond Yields and the Dollar

In the bond market, the 10-year U.S. Treasury yield rose sharply from 4.27% to 4.43%, amid expectations of economic growth and higher deficits. The dollar also reached a record level since July, supported by the prospects of higher trade tariffs that could bolster the U.S. currency.

Stocks in Brief

• Nvidia (+4.00%): Benefits from Trump’s support for the tech industry.
• Tesla (+14.75%): Significant rise supported by Trump ally Elon Musk.
• JPMorgan Chase (+11.64%) and Goldman Sachs (+13.10%): Banking stocks rise on deregulation expectations.
• Chevron (+2.81%) and ConocoPhillips (+4.05%): Gains in the oil sector with favourable outlook under Trump.
• NextEra Energy (-5.25%) and First Solar (-10.13%): Renewable stocks fall due to Trump’s pro-fossil fuel policies.
• Trump Media & Technology Group (+5.94%): Gains as investors bet on growth for Trump’s media company.
• Alibaba (-2.50%), PDD (-1.29%), and JD.com (-3.40%): Chinese stocks under pressure amid anticipated tariff hikes.

Thursday

The New York Stock Exchange closed higher on Thursday, marking new records for the S&P 500 and Nasdaq thanks to a tech rally and the Federal Reserve’s rate cut. Donald Trump’s electoral victory continues to fuel optimism, heightening expectations of tax cuts and deregulation to boost the U.S. economy.

• S&P 500: The broad index gained 0.74%, closing at a record 5,973.10 points.
• Nasdaq: The Nasdaq rose 1.51%, reaching 18,983.47 points.
• Dow Jones: The index closed flat after its historic 1,500-point jump on Wednesday.

Tech Stocks Reach New Highs

Tech stocks dominated the session, driven by positive expectations around Trump’s policies and the Fed rate cut. The Roundhill Magnificent Seven ETF (MAGS), which tracks tech giants like Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, hit an all-time high, up over 8% over the last five days. The semiconductor sector also had a strong day. Nvidia consolidated its position as the world’s largest company by market capitalization, with its stock rising 2.25%, reaching a record valuation of $3,652 trillion. Other companies in the sector also saw gains: Intel (+4.71%), AMD (+3.25%), Broadcom (+2.37%), and Arm Holdings (+4.13%), boosted by optimism around advanced technologies.

Financial Sector and Trump Media Face Pressure

Despite the overall positive performance, the financial sector showed signs of weakness after its previous rally. Goldman Sachs (-2.32%), American Express (-2.83%), and JPMorgan Chase (-4.32%) declined. Likewise, Trump Media and Technology Group fell 22.97% after heightened volatility, reflecting its popularity among speculative investors.

Fed Rate Cut: Supporting Employment Amid Market Optimism

The Federal Reserve reduced its benchmark interest rate by a quarter point to a range of 4.50% to 4.75%, emphasizing its commitment to supporting employment alongside inflation control. This second consecutive cut, following a 0.5% reduction in September, signals a more moderate approach. Fed Chair Jerome Powell noted that the institution aims for a more neutral policy suited to an economy with moderate growth and inflation near the 2% target.

The impact was positively felt on stock markets, with the Nasdaq gaining 1.5% and the S&P 500 reaching new highs. Treasury yields fell, reflecting expectations of a slowing rate hike path.
With Trump’s recent election, which could drive inflation, questions remain about the extent of future rate cuts. Although the Fed does not expect the administration to directly impact its policy, potential economic growth under Trump could influence rate trajectories. Powell reaffirmed his intention to maintain Fed independence despite the political shift.

Stocks in Brief

• Nvidia (+2.25%): Maintains its position as the largest company by market capitalization.
• Tesla (+2.90%): Benefits from potential deregulation under Trump.
• Intel (+4.71%) and AMD (+3.25%): Semiconductors rise with growth prospects.
• Trump Media and Technology Group (-22.97%): High volatility, down after a peak on Wednesday.
• Lyft (+22.85%): Significant jump following positive results and forecasts.
• Warner Bros Discovery (+11.81%): Gains due to 7.2 million new subscribers to Max.
• S&P/TSX (+208.48 points): Driven by technology and metals, supported by rising oil.
• Canadian dollar rose to 72.12 cents USD.
• In New York, crude oil rose by 67 cents to reach $72.36 per barrel.
• Gold increased by $29.50 to $2,705.80 per ounce, and copper jumped 18 cents to $4.43 per pound.

Friday

At the open Friday, U.S. stocks were mostly stable, with the S&P 500 and Nasdaq Composite holding near their historic highs, fueled by a postelection rally and the Federal Reserve's recent rate cut. These two indexes continue to benefit from the optimism around the anticipated pro-growth policies of President-elect Donald Trump and hopes for deregulation.

• S&P 500: Up approximately 4.3% for the week.
• Dow Jones: Increasing by nearly 4%, marking its best week since November 2023.
• Nasdaq Composite: Leading with a 5.6% gain, thanks to strong performance in the tech sector.

Conclusion

This week has been notable for U.S. markets, driven by a historic postelection rally and investor optimism surrounding Trump’s anticipated domestic growth policies. The S&P 500, Dow Jones, and Nasdaq Composite are on track for their best weekly gains in nearly a year, as investors anticipate potential deregulation and favorable tax policies under a Republican administration. However, concerns about inflation risks tied to proposed tariffs and the growing federal deficit are beginning to emerge, with the Fed maintaining caution regarding further rate cuts.