Wall St rallies after earlier futures sell-off

US stocks climbed as investors digested speeches from Trump and Clinton that promised a smooth transfer of power.

Investors are digesting the implications of a Trump presidency. Picture: AP Photo/Richard Drew.

Investors embraced the election of Donald Trump as president, snapping up stocks and selling bonds in a bet that the Republican’s plans for fiscal stimulus would succeed in breaking the US out of a postcrisis economic funk.

The Dow Jones Industrial Average posted its second large gain this week, rising 257 to 18590, led by a rally in financial and health-care firms.

In Europe, stocks bounced back from early losses as Mr Trump’s conciliatory victory speech calmed jangled nerves.

The Australian share market is set to follow Wall Street’s lead and soar this morning, with ASX futures up 157 points.

Meanwhile the yield on the 10-year US Treasury note surged to 2.07 per cent, its highest level since January. Yields rise when prices fall.

The action shows that after months of either downplaying the likelihood of a Trump presidency or selling shares in a defensive reflex when Mr Trump rose in pre-election polls, investors are welcoming the prospect that expansive fiscal spending under the Trump administration would bolster economic activity, push up inflation and support higher bond yields in coming years.

Investors said they aren’t sure how seriously to take the prospect of a Trump stimulus. At the same time, many said they believe Mr Trump views his mandate as centering on restoring US growth after a tepid postcrisis economic expansion.

A Trump stimulus could be good for stocks and bad for bonds, analysts said, by boosting economic growth that would bolster hiring and corporate earnings while cutting taxes, leading to deepening deficits that tend to be associated with higher interest rates.

The S&P 500 rose 1.1 per cent and the Nasdaq Composite added 1.1 per cent, building on a two-day rally heading into the election. The Dow industrials rose 371 points Monday -- their biggest gain since January.

The KBW Nasdaq Bank Index of large US commercial lenders rose 4.9 per cent Wednesday as investors bet on rising interest rates and decreased regulations, which should boost earnings at banks. The Nasdaq Biotechnology Index, shunned by investors much of the year amid concerns that a Democratic administration would push for drug-price controls, jumped almost 9 per cent.

“The case for health-care stocks is clear cut,” said Eddie Perkin, chief equity investment officer at Eaton Vance, who said he was a buyer even with Wednesday’s rally. “It has been the worst-performing sector in the S&P 500 year-to-date, and the removal of political risk is a near certainty.”

Moves in the other direction were nearly as pronounced, with stocks that are typically considered bond proxies, such as the utilities and real-estate sectors, falling more than 2 per cent in the S&P 500.

Several investors said one near-term risk to financial markets was confusion over Mr Trump’s policy goals, with some pointing to his sweeping campaign-trail proposals that would represent significant shifts on things like trade, immigration and taxes, and what they called his lack of specifics on how to implement such plans.

“We just don’t know what he really stands for,” said Jim Tierney, chief investment officer of concentrated US growth at AllianceBernstein. “We don’t know what he’ll propose or what he’ll get through.”

Wednesday’s rally came after Trump’s surprise victory spiraled through financial markets overnight Tuesday and into Wednesday morning, sending US stock futures and the dollar sliding and safe havens such as gold and the Japanese yen soaring.

Jonathan Corpina, senior managing partner at Meridian Equity Partners, arrived at the New York Stock Exchange at 7:15 a.m. and -- after following a tumultuous night of stock-futures trading -- was surprised to see indications that the market could open flat or higher.

As Hillary Clinton walked to the podium to give her concession speech, Mr Corpina said a hush fell over the NYSE trading floor. Traders crowded around televisions on the floor and turned up the volumes. As Mrs. Clinton delivered remarks, which underscored a smooth transfer of power, the quiet on the floor was punctuated by phone rings and computer beeps announcing client orders.

“She kept her head high, she said the right things, and that helped with the overall market,” Mr Corpina said.

Earlier, European markets had opened with a thud, following the steep drop in Japanese equities -- the Nikkei Stock Average lost more than 5 per cent.

But risk assets staged a remarkable recovery during European morning trading hours as the initial shock wore off and Mr Trump vowed to begin the “urgent task of rebuilding our nation and renewing the American dream.”

The Stoxx Europe 600 closed 1.5 per cent higher.

Brent crude oil, the global benchmark, rose 0.7 per cent after shedding more than 3 per cent.

The WSJ Dollar Index, which measures the US currency against 16 others, fell sharply but recovered to trade up 0.9 per cent.

Gold had climbed as much as 5 per cent in a flight to safety before ending down less than 0.1 per cent.

The yield on the 10-year Treasury note had fallen as low as 1.720 per cent, according to Tradeweb, but then climbed above 2 per cent for its biggest one-day yield gain since 2013.

Dow Jones