Trump’s major victory in the presidential election has sparked impressive rallies in U.S. stocks and other risk assets. The so-called "Trump trade" has boosted Bitcoin and cryptocurrencies, Tesla TSLA, the U.S. dollar, and small-cap stocks in particular.
Investors appreciate clarity and certainty, which is why stocks tend to rise after elections. They also hope that lower taxes and reduced regulation will benefit the economy.
Many investors have poured into areas of the market they believe will gain the most from the Trump trade. Many leveraged ETFs have garnered a lot of interest as traders seek to amplify their bets.
Bitcoin has risen over 30% since the election, as Trump has promised to make the U.S. “the crypto capital of the world," ease regulatory burdens, and establish a reserve to hold the nation’s Bitcoin supply.
Assets in the iShares Bitcoin Trust IBIT have surged to over $41 billion. Leveraged single-stock ETFs for crypto-related stocks like MicroStrategy MSTR and Coinbase COIN have also seen heavy trading and significant inflows.
Tesla has surged more than 40%, adding over $300 billion to its market value amid speculation that CEO Elon Musk could have influence in the new administration. Furthermore, this relationship might facilitate the automaker’s ambitions for greater autonomy.
Trump’s proposed tariffs and a stronger dollar could aid small-cap stocks, which have been underperforming. Additionally, a stronger economy and lower tax rates could stimulate consumer spending, further benefiting domestically focused companies.
However, some of these trades may be overextended. Investors should also remember that long-term stock market returns are mainly driven by economic conditions and earnings growth. Currently, the U.S. economy remains strong, with inflation nearing the Fed’s target and earnings continuing to grow.
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