Stocks Rally After Trump Win—These Sectors Are Leading the Way Higher

Stocks climbed on Wednesday after Donald Trump’s victory in the US presidential election, led by outsize gains in so-called Trump-trade bets.

These investments, such as financial and energy stocks, are expected to benefit from Republican policies like deregulation, lower taxes, and tariffs. Cryptocurrencies also rose. As of midafternoon Wednesday, the Morningstar US Market Index was up roughly 2.6%. The rally was broad-based.

According to Steve Sosnick, chief strategist at Interactive Brokers, there’s a perception that markets prefer Republican presidencies, even if the last two years of soaring returns under a Democratic president argue against that. Nonetheless, “investors like the potential for lower tax rates,” he says.

Meanwhile, rising bond yields illustrate ongoing investor concern about potential higher inflation down the line thanks to tariffs, reduced taxes, and a growing federal deficit.

What Sectors Are Benefiting From Trump’s Victory?

Investors generally expect Trump to usher in an environment friendly to big business.

That’s been especially good for financial stocks, which are heavily affected by regulatory changes. The Morningstar US Financial Services Index, which includes banks like JPMorgan Chase JPM and Bank of America BAC, was up nearly 6.3% on Wednesday afternoon.

Banks also tend to benefit from a steeper yield curve and higher long-term interest rates, which means they can lend money to customers at a higher rate while borrowing at a relatively low rate. “Banks have a twofold benefit from a sector perspective,” explains Dominic Pappalardo, chief multi-asset strategist at Morningstar Investment Management.

Energy companies also soared on Wednesday, with the Morningstar US Energy Index up 4.3% at midday. That index includes fossil fuel companies like Exxon Mobil XOM and Chevron CVX, which are expected to benefit from reduced environmental regulation. Meanwhile, solar energy companies struggled as investors now anticipate a deemphasis on clean energy under another Trump administration.

Tech stocks haven’t seen the same scope of gains, but they’re rallying nonetheless. Pappalardo attributes some of that momentum to the prospect of lower corporate tax rates.

Small Caps See a Boost

Wednesday also brought outsize returns from smaller-capitalization companies, with the Morningstar US Small Cap Index up 4% as of midday. “You’re seeing smaller stocks outperform because they might be most they might be the biggest beneficiaries of protectionist policies,” Sosnick says. He explains that mega-cap companies like Nvidia NVDA and Microsoft MSFT don’t need to be concerned with global competition, but smaller companies “need a little extra help, and that might be coming their way.”

Pappalardo adds that smaller cap stocks also stand to benefit meaningfully from decreased regulation and an easier environment for mergers and acquisitions. “Regulatory hurdles and costs can have an outsize impact on smaller companies, as the incremental costs are often harder for them to overcome compared with larger-scale counterparts,” he says.

Why Are Long-Term Rates Rising?

While stocks rally, the yield on the 10-year Treasury note has climbed above 4.4% as investors sell their holdings, sending prices lower. This indicates investor concerns surrounding the potential impact Republican policies like tariffs and tax cuts will have on inflation. “The bond market does not like this,” Sosnick says. “That could put a damper on the festivities today.”

How Long Will the Trump Trade Last?

While no one has a crystal ball for the stock market, strategists say they don’t expect Wednesday’s outsize moves to persist for long.

“In my opinion, this is a one-time adjustment,” Pappalardo says. “I think we’ll have a short-lived reactionary period, and at some point soon, market participants will turn back toward fundamentals” from today’s new baseline. He adds that policy changes can take years to trickle down to corporate earnings.

Over the longer term, strategists say stocks still have plenty of room to run. “Along with the resolution of election uncertainty, resilient recent economic growth data and continued Fed rate cuts support the healthy near-term outlook for US stocks,” Goldman Sachs analysts wrote in a note to clients on Wednesday.