Since the election, select stocks, cryptocurrencies, and currencies have had renewed momentum. The S&P 500 broke through 6,000, having gained roughly 4% since November 5. Bitcoin—the largest cryptocurrency by market cap—jumped to a new all-time high above 92,000. And a range of other investments have seen noticeable short-term movements.
For active investors, the question is whether these trends have the underlying strength to continue over the longer term.
Post-election trends
Several short-term trends have developed in recent weeks. “The election results appear to have caused a large market adjustment beginning on November 5, ranging from sector rotation (into consumer, financials, and energy), small-cap outperformance, higher equity valuations, lower implied volatility, a stronger dollar, and higher real yields,” notes Jurrien Timmer, director of global macro at Fidelity.
Here's a snapshot of some recent market trends:
| Since Nov 5 | YTD | 5-year | |
|---|---|---|---|
| S&P 500 | +3.9% | +25.4% | +90.6% |
| Small caps | +5.5% | +18.0% | +48.8% |
| Financials sector | +6.5% | +31.1% | +67.1% |
| Energy sector | +5.3% | +11.9% | +57.9% |
| Bitcoin | +27.9% | +99.3% | +925.9% |
| Gold | −6.5% | +24.5% | +75.2% |
| US dollar index | +3.0% | +4.6% | +9.1% |
Source: Fidelity.com, Yahoo Finance, as of November 14, 2024. Small caps are represented by the Russell 2000 Index. Financials are represented by the S&P 500 Financials Index. Energy is represented by the S&P 500 Energy Index.
Amid the broad market rally, financials (banks in particular within this sector) and energy stocks have been among the outperforming stock market sectors in recent days. Also, small-cap stocks—which have underperformed large-cap stocks thus far in 2024—have been the best-performing stocks by market cap.
These trends may be the result of “risk-on” trades accelerating as volatility has fallen. Indeed, the CBOE Volatility Index fell below 14, which is down from the most recent peak above 23. In crypto’s case, there appear to be growing expectations of a more favorable regulatory environment.
“At the same time, high-yield credit spreads have tightened to 256 basis points and the implied equity risk premium compressed to 320 basis points,” Timmer adds. All this is to say that there’s been a noticeable increase in risk appetite among investors now that most of the uncertainty surrounding the election is past.
What could slow this bull market?
While energy stocks have rallied recently, oil prices have stayed in a range. Crude oil is currently trading under $70 per barrel. There could be expectations that rising asset prices and growth expectations, along with lower rates, might translate to higher demand for oil—resulting in an increase in energy prices. Hopes for cooling tensions in the Middle East, plus some expectations for global growth to moderate in the near future, may be helping to keep oil prices in check. Nevertheless, energy costs remain a critical factor to monitor. Recall that oil prices rose steadily in 2021 before peaking in 2022—when stocks rolled into a bear market.
Another factor that Timmer is keeping a close eye on is valuations. “Rising price-to-earnings (P/E) multiples and rising earnings are twin tailwinds right now,” Timmer notes. “But I think that earnings will have to do more of the heavy lifting next year to further propel the market.” Essentially, this means that profitability at companies is going to have to stay strong to keep up with the growth in stock prices, and that could be especially true for some of the investments that have surged lately.
Investing implications
Despite some of the recent developments, much of the market’s fundamentals remain the same. If you are comfortable with your plan, consider sticking with it. And if you are tactically approaching the market with some percentage of your investing portfolio, you may want to evaluate if the recent market movements have staying power.