It is no secret that markets tend to react to events in advance. That is, even before something like a Fed rate cut, the event is usually already priced in, or at least a significant portion of it.
When it finally occurs, there is usually profit-taking or minimal movement unless something unexpected happens, which can lead to wild swings in the market and sometimes significant losses for traders.
Take the upcoming FOMC meeting in December: the market expects a 25bps rate cut, but if that doesn’t happen, the S&P 500 could drop. That’s why it's crucial to stay on top of the data as it comes in.
The reasoning is simple: the longer tight monetary policy persists, the harder it will be for businesses and consumers, especially those with variable-rate loans, of which there are many.
What about Trump's possible return to the White House?
Initially, markets reacted optimistically to the election results, hoping that Trump would reduce the tax burden on businesses and individuals, which would positively affect both.
The problem is that when Trump faces the harsh realities, including the vast budget deficit left to him by the Biden administration, much of his proposed programs could be altered.
Otherwise, his initiatives could not only fail to reduce the U.S. national debt as he promised during his campaign but could cause the deficit to increase by several trillion dollars.
Sectors that could benefit: In theory, industries such as manufacturing, construction, defense, and oil services could see gains, especially with the expected increase in production.
In addition, the cryptocurrency market is in a state of euphoria, driven by Trump's pro-cryptocurrency stance, promises to make the U.S. a global cryptocurrency hub, and potential changes to the SEC.
Analysts at Bernstein predict Bitcoin could reach $200,000 by the end of 2025 if the U.S. adds it to its strategic reserves. U.S. Senator Cynthia Lummis has also introduced the "Bitcoin 2024 Act" in Congress.
According to Goldman Sachs, Trump’s proposed corporate tax cuts, lowering the rate to 15% for U.S.-producing companies, could boost corporate profits by 4%. This would likely help increase the S&P 500.
Another potential winner could be the private prison sector. Since the election results, CoreCivic and Geo Group stocks have surged by several dozen percent, thanks to Trump’s tough stance on border security.