Stocks capped off a strong week of gains with the Dow closing at a another new record high as investors' fears about Donald Trump’s upset election win gave way to hopes the president-elect's policies could boost the economy.
Bullishness about how expected increased government deficit spending could help boost economic growth pushed the Dow Jones industrial average up nearly 1,000 points to a record 18,848 during the week. That 5.4% one-week gain, was the best since a 7% weekly gain in November 2011, says Howard Silverblatt, index analyst at S&P Dow Jones Indices. The broader Standard & Poor's 500 gained 3.8% during the week, the best weekly showing since rising 4.1% during a week in October 2014. Tech stocks were relative laggards, as the tech-heavy Nasdaq 100 was 1.9% higher on the week, but fell 1.1% since the election.
The election results and the market gains were contrary to what most investors had been expecting, says Michael Farr, president of money management firm Farr Miller & Washington. "Pretty much every American and every investor learned that predictions aren’t worth a whole lot," Miller says.
Stocks rose for five straight days in a volatile week that saw investors initially boost stocks on the conventional wisdom that Democratic presidential nominee Hillary Clinton would win the election. But as election results came in on Tuesday and it became clear Republican nominee Donald Trump was winning, stocks plunged overnight with Dow futures tumbling almost 800 points, on fears of what an unknown Trump presidency would bring.
But investors quickly shook off fears about a Trump presidency and focused on some of the policy changes that might be beneficial to financial markets, including tax cuts, a reduction on regulation and increase in infrastructure spending. The Dow ended up posting two straight days of 200-plus gains and smashed through its previous record close. Friday, the Dow Jones industrial average rose 39.78 points, or 0.2%, to close at record 18,847.66. The Nasdaq composite index gained 28.32 points, or 0.5% to 5237.11. The Standard & Poor's 500 index dipped slightly Friday as it fell 3.03 points, or 0.1%, to close at 2164.45.
"The reversals off the Tuesday night, Wednesday morning lows have been nothing short of impressive," said Chris Verrone, partner at Strategas Research Partners, in an analysis for investors. "As far as we're concerned is we continue to view any near-term consolidation or any near-term weakness as buyable at this point. We think this is very impressive acceleration off these levels.”
Some analysts were still cautious since there were very few details on what a Trump administration will do.
Trump's election ushers in an incalculable "risk premium," Bespoke Investment Group said Friday in a research note. But "longer-term, any increase in risk premium is offset by the impact of easier fiscal policy and the possibility of large corporate income tax cuts or a corporate tax holiday for overseas profits. That would be consistent with the historical ability of the president’s policies to impact equity markets; longer-term, other factors matter more than who controls the White House."
Investors pulled out of Treasuries this week, sending bond yields higher. The yield on the 10-year Treasury note jumped to 2.14% Thursday, up from 1.77% last Friday. Bond trading was closed Friday for the Veterans Day holiday. Investors lost more than $1.1 trillion in global bond investments during the week, according to a Bloomberg analysis of the Bank of America Global Broad Market Index, losses only seen one other time in the past 20 years.
"Exactly what was unexpected happened, so markets are doing what markets do," Farr says. "(Markets) price current conditions and expected future outcomes. (Investors) had it wrong, that's why so many are scrambling."
Contributing: Matt Krantz