Investors expect Trump’s business-friendly policies to continue, while some expressed optimism about Congress providing a larger check on Trump’s more disruptive market actions. Historically, equity markets see strong returns when Congress is divided.
Stocks rallied across multiple sectors, as shares of Caterpillar, Goldman Sachs, Amazon and Alphabet all rose. Caterpillar is seen getting a boost from continued economic growth.
There’s also some optimism the president will work with Democrats on an infrastructure plan. Vulcan Materials and United Rentals, jumped 4.5 percent and 0.9 percent, respectively.
Tech shares rose, as a divided Congress could also keep Trump from seriously going after giants like Amazon for being too big and influential on the economy.
“The pollsters were correct. The markets went into this, given [Tuesday’s] close, expecting this outcome,” said Quincy Krosby, chief market strategist at Prudential Financial. “Now the market is trying to figure out which sectors will do better.”
But trade remains one area where Trump still has most control as tariffs are on foreign goods are implemented through the executive branch.
“A further ratcheting up of measures against China in January is still a risk,” strategists at MRB Partners said in a note. “Such an outcome would also add to upward pressure on U.S. inflation, while adding deflationary pressure to global goods prices.”
Meanwhile, the Federal Reserve is kicking off a two-day meeting on Wednesday. Worries around the pace of interest rate hikes last month saw global markets hit with sharp bouts of volatility. Markets have been pricing in a higher probability of the Fed raising rates again in December, with further tightening seen through 2019.
“I think they’ll just say the data is good and they’re still on the path toward normalization,” said Anwiti Bahuguna, senior portfolio manager at Columbia Threadneedle Investments. “They have the luxury of being data dependent because inflation and wage growth show no signs of the economy overheating.”