Impact of U.S. Election Results on Financial Markets

Key Takeaways:

• Equity Markets Surge: The Republican “Red Sweep” led to record highs in the Nasdaq-100 and S&P 500 indexes.
• Policy Expectations Fuel Optimism: Prospects of lower corporate taxes, extended tax cuts, and deregulation are boosting U.S. corporate profit outlooks.
• Cross-Asset Impacts: The election results are causing notable moves across various asset classes beyond equities.
• Inflation Hedging: U.S. asset owner and consultant viewership activity for U.S. passive TIPS strategies on Nasdaq eVestment hit its second highest level since February 2021 amidst prospects of stickier inflation stemming from expected fiscal policies.

Nasdaq-100® and S&P 500 Reach New Highs Post-Election

The Nasdaq-100 Index® and S&P 500 Index continued to reach new highs in the aftermath of the U.S. election on November 5^th following the “Red Sweep” as Republicans captured the Presidency and both chambers of Congress.

Anticipated Policies: Lower Taxes and Deregulation

The prospect of Republicans being able to push through a lower corporate tax rate, extend the expiring 2017 tax cuts, and enact deregulation policies, were all seen as tailwinds for U.S. corporate profits going forward—spurring equities to their most recent leg higher.

Ripple Effects on Other Asset Classes

While these tailwinds for U.S. equities were quickly priced in, there were reverberations in other asset classes as well. For instance, U.S. Treasury 10-year yields have risen by 80bps to around 4.40%—highest since early July 2024—from their mid-September lows as the debt markets began to price in the likelihood of the Red Sweep and the byproduct of a wider fiscal deficit. Not surprisingly, this increase in Treasury yields also fed into the U.S. dollar hitting a one-year high versus a basket of other major currencies.

Concurrently, U.S. 10-year TIPS yields—a proxy for market-based inflation expectations—have also moved to their highest since early July 2024. Similar to the move in Treasury 10-year yields, investors are positioning for the aforementioned fiscal policies—and the scope for tariffs on select imports—amidst a still solid U.S. economic backdrop and easing financial conditions with the Federal Reserve having cut rates by 75bps since September 2024.

How Nasdaq eVestment Clients are Searching for Potential Investments in Real-Time

Interestingly, with the read-through being that U.S. asset owners and consultants are searching for tactical methods by which to hedge against the prospects of a stickier inflationary backdrop, this thesis was captured in real-time via Nasdaq eVestment profile views for U.S. passive TIPS strategies.

The chart below shows that the 7-day moving average of investor and consultant activity for U.S. passive TIPS strategies reached over four standard deviations above its average over the past five years. This is the second highest level since February 2021—which was around the outset of U.S. inflation beginning to spike higher following massive U.S. fiscal and monetary stimulus, and supply chain constraints in the wake of the COVID-19 pandemic. The only time institutional 7-day search activity for U.S. passive TIPS strategies was higher over the past five years occurred in the week following the Federal Reserve cutting rates by 50bps on September 18^th—the first rate cut since March 2020. 

Source: Nasdaq eVestment. Chart shows 7-day trailing data from Nov 12, 2019 to Nov 12, 2024