The MSCI All Country World index erased its monthly decline and the Dow Jones Industrial Average climbed to a record high. Copper posted its biggest back-to-back surge in three years, gaining alongside lead, zinc, tin and aluminum. The dollar rose against most major peers, while government bonds extended their selloff as Trump’s win bolstered bets on faster inflation. Latin American equities, debt and currencies plunged on speculation that higher U.S. interest rates would damp the appeal of riskier emerging-market securities.
Traders are betting Trump will lower taxes, ease corporate regulation and ramp up spending to spur the world’s largest economy. He’s pledged to at least double the $275 billion five-year building plans of Democratic rival Hillary Clinton, while saying infrastructure will become “second to none” with millions working on projects. A statement posted on the president elect’s official transition website said the new administration will replace the Dodd-Frank Act financial-sector law with pro-growth policies.
“People are going through the possibilities about what Washington looks like today and what Washington can do or not do for them,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “Corporations feel there’s a less restrictive hand. People may take that as a positive.”
Meanwhile, Federal Reserve Bank of St. Louis President James Bullard and his San Francisco counterpart John Williams stressed the importance of the central bank’s independence from political influence. Questions remain, however, over Trump’s attitude toward Chair Janet Yellen, whom he accused of holding rates low to aid Democratic President Barack Obama. Traders see an 84 percent chance of rate hike next month, according to federal funds futures pricing.
“I am not seeing enough volatility here to change my basic projection for the economy,” Bullard said Thursday. “I think we are basically on track, the same way we were before the election. Our view has called for a single rate increase and I think December would be a reasonable time to implement that increase.”
MSCI’s global gauge rose 0.2 percent at 3:41 p.m. in New York. The S&P 500 added 0.2 percent to 2,166.62, and the Dow Average jumped 218 points. Some of the biggest technology companies from Apple Inc. to Microsoft sent the Nasdaq Composite index down. Meanwhile, the small-cap Russell 2000 index extended a five-day rally to 8.4 percent.
Banks and health-care shares surged on bets a Trump administration will roll back regulatory scrutiny of the industries. Industrial shares rallied as the Republican plans to boost infrastructure spending. Utility and real-estate stocks tumbled as a rout in bonds pushed yields higher, damping demand for the shares’ relatively high dividend payouts.
“Yields are moving their way higher, that’s good for banks,” said Art Hogan, chief market strategist and director of research for Wunderlich Securities in Boston. “If there’s going to be a friendlier regulatory environment that’s going to be good for banks. That’s the tailwind behind financials we haven’t seen for a long time.”
Elsewhere, the Stoxx Europe 600 index erased gains as a slide in utility and real-estate shares outweighed a rally in financial companies. The MSCI Emerging Markets index dropped toward the lowest level since August, with benchmarks in Argentina, Mexico and Brazil slumping at least 3.2 percent. Russian shares rallied for a third day on speculation that a new U.S. government will mend its ties with Moscow.
Benchmark 10-year note yields rose eight basis points, or 0.08 percentage point, to 2.14 percent, according to Bloomberg Bond Trader data. They were on course for the highest level since January. The yield on 30-year bonds increased 10 basis points to 2.95 percent, after jumping the most since October 2011 Wednesday.
Treasury’s $15 billion 30-year debt auction Thursday again showed waning investor appetite for U.S. debt as Trump is seen ramping up spending to boost the economy, potentially widening the budget deficit and stoking inflation.
Investors from Pacific Investment Management to TIAA Global Asset Management see the surge in long-term U.S. Treasury yields as a sign inflation will in fact be on the rise. That means the long-dormant part of the Fed’s dual mandate could force policy makers to act more swiftly to raise borrowing costs than they have in 2016.