Markets Cheer Trump's Return, Eyeing Key Stocks

Markets cheered Donald Trump's return to the White House, but certain stocks are expected to continue their upward trajectory in the aftermath.​

Some Stocks Rally After Election

The US stock markets surged following the election of the 47th President, with all major indices reaching new record highs. Cyclical and pro-growth stocks led the gains, reflecting a risk-on attitude among investors. This positive sentiment also contributed to a rise in Bitcoin. However, the most significant gains were observed in small-cap stocks, with the Russell index soaring 5.8%, marking its best single-day performance since the end of 2022.

Despite the optimism, analysts cautioned that markets could face increased volatility, reminiscent of the previous Trump presidency, where the President's tweets and impromptu statements often impacted market movements.

Trump Media & Technology (DJT) exemplified this volatility, rallying 6% on election day but then plunging 20% the following day as speculative enthusiasm waned. The company's share price had skyrocketed over 400% in the days leading up to the election, suggesting that any speculative surges in the aftermath might eventually revert to fundamentals.

This raises questions about which stocks have the potential to sustain their upward trajectory during a second Trump term. Analysts have compiled lists of sectors likely to benefit in the long run, with an emphasis on crypto, banking, and small-cap companies.​​

Potential Standout Companies

Tesla shares rose 15% after the election results became apparent, and the stock has continued to trend higher. Investors appear to believe that CEO Elon Musk's support for President Trump will benefit the company. Although President Trump is known for favouring fossil fuels, and the recent drop in crude oil prices is attributed to expectations of increased production over the next four years, a Republican-controlled Congress is expected to reduce subsidies for electric vehicles (EVs). The White House may also impose new tariffs on Chinese imports, complicating Tesla's position in the world's largest EV market. However, analysts suggest that Tesla's scale and domestic production capacity could give it a competitive advantage over other EV makers relying heavily on subsidies. Additionally, a more business-friendly regulatory framework could accelerate the public availability of full self-driving (FSD) cars and robotaxis announced in October. Securing permits has been a major challenge for the company.

Analysts believe that a Republican sweep of the White House and Congress will lead to an increase in construction, which has helped propel Caterpillar's stock up 8.5% since the election. The argument is that easing regulations focusing on rural areas and lower taxes expected in the next four years will boost the construction sector. Caterpillar reported a 4% drop in sales in the last quarter, driven by slower demand, particularly in the US, which represents the bulk of the company's end market. Analysts suggest that a Trump White House will produce policies that encourage domestic industry, with increased reshoring supporting industrial construction.​

Caterpillar Leaves Behind Wedge

The stock price of Caterpillar formed a broadening wedge correction before extending to $420 per share. It also tested support at the $360 trendline before taking off, marking a local floor. The measured-move projection at the breakout point of $365 suggests a potential move to $440 while prices remain above $400. Conversely, falling below the round support level may open the door to $380, ultimately exposing $300 in the long term. Meanwhile, breaking through the measured-move target of $440 could lead to $450 and the psychological resistance level of $500 in the medium term.​

Source: SpreadEx / Caterpillar

Key Takeaways

The US stock markets surged following the election of Donald Trump, with all major indices reaching new record highs. However, analysts cautioned about potential volatility reminiscent of Trump's previous presidency. Cyclical and pro-growth stocks led the gains. Tesla shares rose 15%, with investors believing CEO Elon Musk's support for Trump will benefit the company. Despite concerns over reduced EV subsidies and tariffs on Chinese imports, Tesla's scale and domestic production capacity could give it a competitive advantage. Caterpillar's stock also climbed 8.5%, as analysts expect a Republican sweep to boost construction through easing regulations and lower taxes.