Given the strong market response to the recent election outcome and the Federal Reserve’s rate cut, our perspective focuses on balancing optimism with prudent positioning, as market sentiment reflects both political and economic factors.

U.S. stocks closed at record highs, buoyed by Donald Trump’s election victory and the Fed’s 25-bps rate cut, signaling optimism around potential fiscal stimulus, tax cuts, and deregulation. The S&P 500’s breach of the 6,000 mark, along with new highs in the Dow and Nasdaq, reflects a strong risk-on sentiment, especially in traditionally defensive sectors like utilities, real estate, and consumer staples. The notable performance of Tesla, which achieved a trillion-dollar valuation, and Axon Enterprises, on revised revenue guidance, highlights market confidence in companies with robust growth potential. However, materials lagged, likely due to mixed inflation expectations and concerns over tariff policies.

The Fed’s recent 0.25% rate cut, accompanied by Chair Jerome Powell’s neutral stance on future cuts, has created a favorable environment for equities. Powell’s statements—emphasizing that the election results won’t influence near-term policy—indicate that the Fed remains focused on underlying economic data rather than political shifts. The market’s current expectation of a 68-71% chance of another cut in December will keep investor focus on upcoming CPI and PPI data, as inflation remains a crucial factor in shaping the Fed’s policy direction.

The dollar index’s appreciation to 104.7 reflects market sentiment that Trump’s policy agenda may support U.S. economic growth, despite potential inflationary pressures. Meanwhile, the 10-year Treasury yield eased to 4.29% as markets digested both the Fed’s rate cut and election outcome, balancing rate cut expectations with growth-driven inflationary policies. Investors should be prepared for potential yield volatility as markets assess further rate cuts and the evolving economic outlook under Trump’s administration.

The University of Michigan consumer sentiment index reaching a seven-month high underscores continued strength in U.S. consumer spending. However, as this data predates the election, further updates will be important for gauging how fiscal policy expectations impact consumer confidence. Elevated sentiment, if sustained, could support consumer-oriented sectors, adding to growth prospects in areas like consumer discretionary.

Strategic Implications:

With record highs across major indices, we favor to maintaining selective exposure to high-growth sectors and defensive areas that have performed well, such as utilities and consumer staples, which offer stability in an inflationary environment. Sectors like technology, consumer discretionary, and infrastructure could benefit from anticipated fiscal policies, but it’s prudent to monitor any shifts in trade or tax policy that could affect earnings.

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