New York
CNN
—

Markets were expected to rise sharply on Wednesday morning after a shift towards the Republicans, including a decisive and consequential victory for former President Donald Trump in Tuesday’s US presidential election.

Dow futures rose 1,200 points, or 2.9%. Futures for the broader S&P 500 were up 2.3% and the tech-heavy Nasdaq rose 1.8%.

In part, markets were likely pressured by the fact that the election was decided relatively quickly. The elections have served as a cloud over the US economy and stock market in recent months. Markets in particular are hungry for certainty, and the clear path forward will allow companies to adjust their business and recruitment plans.

But stocks can also react to Trump’s victory. Trump flipped several swing states from President Joe Biden’s 2020 victory, and Republicans also took control of the Senate. Several key House races remain undecided. A so-called red wave could usher in an era of deregulation and other pro-business laws and policies that investors believe could benefit the stock market.

“We think stock prices will rise as we remove uncertainty, volatility declines and hedges disappear, with investors refocusing on the Fed at a time when the economy and corporate earnings remain resilient,” JPMorgan analysts predicted in a report ahead of Tuesday’s election results. Under a “red wave,” the bank said shares would rise through the end of 2024, but that “uncertainty around policy implementation would become more prominent in 2025.”

However, markets and the economy have generally performed better under Democratic presidents — although stocks have soared regardless of which party controls the White House. According to Sam Stovall of CFRA Research, the S&P 500 has grown on average 10% among Democrats and 6.7% among Republicans. Gross domestic product, the broadest measure of the U.S. economy, averaged 3.9% under Democratic presidents, well above 2.4% under Republicans.

Trump has advocated policies, including tax breaks and increased government spending, that could spell trouble for the economy and significantly increase the U.S. budget deficit. That devalued U.S. Treasury bonds, sending yields, which trade in the opposite direction of bond prices, soaring.

Ten-year bond yields rose above 4.4%, undermining the Federal Reserve’s efforts to cut rates to stimulate the economy. The Fed has been raising rates in recent years to counter a devastating wave of inflation. But she started cutting rates in September and is widely expected to cut again on Thursday at the end of her two-day policy meeting.

Although the fed funds rate can influence Treasury yields, consumer borrowing rates, including mortgage rates, auto loans and credit cards, are more closely tied to Treasury yields. So Trump’s victory, at least for now, appears to be keeping these numbers somewhat higher.

Other so-called Trump trades, including shares of his social media stock, Trump Media & Technology Group, rose Wednesday morning. TMTG shares, which trade under the ‘DJT’ symbol, rose 30%.

The US dollar also rose 1.7% against the euro and British pound, to its highest level since July. The dollar could benefit from Trump’s radical plan to significantly raise tariffs, perhaps creating more demand for American goods at home — although most economists oppose the plan and many suggest it will not change consumer behavior.

However, Trump’s tariff plan could boost inflation, which could also undermine the Fed’s rate cuts.

Bitcoin also shot to a new high near $74,000 on Wednesday morning. Trump has warmed to cryptocurrencies in recent months after broadly opposing them during his first term. Crypto has soared as Trump’s re-election chances appeared to increase.

European shares underperformed their US peers on Wednesday morning. The Stoxx Europe 600 index, the benchmark for the region, rose 1.3%. Germany’s DAX and France’s CAC rose 0.7% and 0.8% respectively, while London’s FTSE 100 traded 0.9% higher on the day.

In Asia the picture was mixed. Japan’s Nikkei 225 closed 2.6% higher, while Australia’s S&P ASX rose just 0.8%.

“A strong Trump presidency and a weak (Japanese) government should be a good combination for Japanese markets, especially equities, as US pension money headed to Asia will continue to face challenges investing in China,” says Neil Newman, head of strategy at Astris Advisory in Tokyo.

In China, the Shanghai Composite Index was largely flat, while Hong Kong’s Hang Seng Index closed 2.2% lower.

“Chinese stocks sold off overnight in anticipation of more tariffs on US imports from China,” Daniel Murray, deputy chief investment officer and head of research at EFG Asset Management, said in a note.