The S&P 500 soared 4.7 per cent after Donald Trump’s sweeping election victory paved the way for a more business-friendly environment.

Seemingly against all odds, America’s 45th president became its 47th, and equity markets celebrated the end of a key, near-term political uncertainty.

The recent market rally marked the S&P 500 index’s best weekly performance since November 2023.

The technology-heavy Nasdaq 100 and Russell 2000 index for smaller companies outperformed by 0.75 per cent and 3.91 per cent, respectively.

Banks and Tesla were the standouts for the week with the Financial Select Sector index fund jumping +5.5 per cent, the S&P Regional Bank exchange traded fund up +10.8 per cent and Tesla +29 per cent.

Bond markets were mixed last week with the ten-year yield falling eight basis points as the front end of the interest rate curve responded to a 0.25 per cent rate cut by the Federal Reserve yesterday.

The US Dollar added 0.69 per cent, making for its sixth consecutive weekly gain. The DXY dollar index has now rallied 4.6 per cent from its September 27 low. Commodities were flat for the week despite West Texas Intermediate oil prices adding 1.3 per cent to close above $70 per barrel. Gold was lower on the week but remains up more than 30 per cent since the beginning of the year.

So far, the market reaction to the election appears to fall somewhere between rational and a bit over exuberant. For example, it makes sense that the Trump bump trade should include the heavily regulated financial sector.

Trump is known for his less aggressive stance on regulation, favouring more of a free-market system. Also, the banking industry is ripe for consolidation and any dialling back of the intense scrutiny over dealmaking will be a positive. Indeed, investment banking giant, Goldman Sachs shot up 13 per cent the day after the US election.

Smaller companies appear well-positioned ahead of the administration change.

In general, smaller companies should benefit from Trump’s focus on stimulating the domestic economy as they typically have less foreign market exposure while more quickly adapting to changing policies and market conditions. As well, they potentially benefit more than their larger counterparts from the likely extension of the Trump tax cuts at the end of next year.

As with small caps, technology stocks will be helped by lower taxes and less regulation. However, on the downside, the Trump Administration's protectionist trade policies, particularly towards China, may disrupt the global supply chains crucial to the industry, leading to increased costs and potential delays for hardware and consumer electronics.

Moreover, tensions regarding data privacy and cybersecurity could impact regulatory measures, potentially increasing scrutiny and costs for tech firms operating in sensitive data or social-media spaces.

Also, the Federal Reserve lowered interest rates by 0.25 per cent at its regular Federal Open Market Committee meeting. While Fed chair Jerome Powell gave a decidedly market friendly, or “dovish” talk after the meeting, he may face a bit of a conundrum going forward. Short-term market data still indicates the need to cut interest rates but the previous expectation of more than ten cuts through to 2026 has evaporated.

Bond markets initially sold off after the election on the premise that president-elect Trump’s intended policies may significantly add to the national debt, stimulating domestic investment and potentially creating further inflationary pressures. Thus, the Fed may need to pare back the need for multiple rate cuts.

If federal debt continues to increase unchecked, investors may require a greater return for the inherent increased risk. One impact is that mortgage rates could remain higher and directly impact consumers, something that if inflation also bites could soften the benefit of President Trump’s policies on economic growth.

For investors, there are now higher interest rates for longer expected in fixed-income markets. On the other hand, during Trump’s previous term we did not see the inflationary impact that is now being so broadly advertised. Time will tell if the new administration can continue to thread the needle.

• Bryan Dooley, CFA, is the chief investment officer at LOM Asset Management Ltd in Bermuda. Please contact LOM at +1 441-292-5000 or visit www.lom.com for further information. This communication is for information purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. Readers should consult with their Brokers if such information and or opinions would be in their best interest when making investment decisions. LOM is licensed to conduct investment business by the Bermuda Monetary Authority