Sebastien Page, head of global multi-asset and chief investment officer at T Rowe Price, said there was an element of a relief rally this week following the election.
“That’s a big part of it. We now know who’s going to be president, and we kind of know what their policies are about,” he said. “The market is expecting deregulation, lower taxes and higher inflation.”
Friday’s gains were helped by a strong rally in billionaire Elon Musk’s Tesla, the market value of which rose above US$1 trillion for the first time in more than two years.
Tesla, up 8.2% on the day, had its best week since early 2023. Bets that Musk’s closeness to the incoming president will support the electric vehicle maker’s fortunes fuelled the 29% gain.
The Fed’s decision to cut its benchmark interest rate by a quarter-point had been widely expected. However, chairman Jay Powell avoided commenting on the potential impact of a Trump presidency on the economy.
He was also emphatic that he would not step down early if asked to do so. Investors had worried that, if elected, Trump might use his position to frustrate the central bank’s independence or any move to put up interest rates.
“Ultimately, as Powell said last night, anyone whose job it is to predict the economy will tell you how hard it is,” said William Vaughan, an associate portfolio manager at Brandywine Global Investment Management. “It is important to focus on announced policies rather than pre-election rhetoric, which can often be extreme to win an election.”
A rally on Friday in US Treasuries led them to recover almost all the ground lost in the initial dramatic sell-off sparked by Trump’s victory.
The yield on the 10-year Treasury slipped as low as 4.27% – below the level where it closed on November 5, the day before the US election result sent “Trump trades” tearing across global financial markets, before rebounding slightly to 4.3%.
Earlier in the week, investors had dumped bonds, betting Trump’s plans for tariffs and tax cuts would fuel inflation and that the path of interest rates would need to be higher than thought. The 10-year Treasury yield jumped to 4.48%, a four-month high, as the results of the election came in.
But traders have since been encouraged by the Fed chair’s comments that it was too early to judge whether the incoming president’s policies would change the interest rate outlook.
“I don’t buy that Trump will cause a wave of inflation,” said Matthew Morgan, head of fixed income at Jupiter Asset Management. He pointed to the cooling jobs market as evidence for the fund manager’s view that market expectations of higher inflation had been overdone.
Some investors viewed the initial market reaction to Trump’s victory as a knee-jerk response to his campaign rhetoric on tariffs, questioning whether these represented an initial negotiating position and whether broad-based tariffs could get through Congress.
Written by: Jennifer Hughes in New York, Ian Smith and Rafe Uddin in London and Arjun Neil Alim in Hong Kong
© The Financial Times
