'Trump Bump' 2.0: Stocks Showing the Biggest Gains Post-Election

US markets soared during early trading Wednesday morning in a robust market reaction to the election, as former President Trump defeated Vice President Kamala Harris in a decisive victory. The Dow leapt 3.3%, while the S&P 500 and Nasdaq both advanced about 2.1%.

Despite rising political tensions lately, stocks were eerily calm heading into the election. The market’s level of uncertainty peaked prior to the outcome, with the volatility (VIX) index plunging nearly 7% during Tuesday’s session and another 23% on Wednesday. Not only are markets forward-looking, but they also have a way of looking past short-term noise.

It’s small-caps taking the lead post-election as the Russell 2000 is surpassing its former all-time highs from late 2021. The Russell 2000 jumped more than 5% this morning, indicating an impressive bounce in a nod to favorable policies tied to a second Trump administration. The iShares Russell 2000 ETF (IWM Quick QuoteIWM - Free Report) is poised to break out of a multi-year cup formation:

Image Source: StockCharts

Small-caps soared after Trump was first elected back in late 2016, as markets responded favorably to the idea of deregulation. Under the Biden/Harris administration, small-caps have really struggled, but it looks like that is changing course and realigning with history. Small-cap companies also tend to have a greater sensitivity to interest rates, so the rate path from here is beginning to favor this pocket of the market.

As far as the make-up of Congress goes, Republicans have officially retaken the Senate and currently have an edge in the House. While a sitting President certainly has influence, the control of Congress may matter even more.

Over time, we can see that a split Congress has been optimal for stocks. Still, markets tend to like a Republican-controlled Congress better than a Democrat one:

Image Source: Zacks Investment Research

Individual Stocks and ETFs Ripping After Trump Victory

Shares of Trump Media & Technology Group (DJT Quick QuoteDJT - Free Report) soared Wednesday morning following the results of the election. Yesterday after the bell, the company reported a Q3 loss of $19.2 million. Despite the sour report, DJT stock gained more than 9% in early trading:

Image Source: StockCharts

The deregulation theme that was evident after the former president was first elected to office appears to be back with a vengeance. Financial stocks in particular are responding favorably; the Financial Select SPDR ETF (XLF Quick QuoteXLF - Free Report) surged nearly 18% in the month following Trump’s victory eight years ago. Fast forward to today, and the XLF ETF has broken out once again:

Image Source: StockCharts

Crypto stocks have also gained steam after Trump repositioned himself heading into the election. A more favorable stance toward crypto became evident after the former president attended the Bitcoin 2024 conference and publicly endorsed crypto project World Liberty Financial.

Trump has laid out several policy proposals that appear friendly to the crypto community, including creating a government stockpile of Bitcoin along with a crypto advisory council. Senator J.D. Vance, Trump’s vice-presidential running mate, has made his positive outlook toward crypto known as well.

With Bitcoin breaking above its former all-time high just hours after the election, one stock that has been taking full advantage is MicroStrategy (MSTR Quick QuoteMSTR - Free Report) . The company provides AI-powered enterprise analytics software and services. Co-founded by Michael Saylor, MicroStrategy has invested heavily in Bitcoin; MSTR shares were breaking out ahead of the election and are up nearly 300% this year:

Image Source: StockCharts

Seasonal Cycle Stats Point to More Strength Ahead

Outside of the presidential election, we have now begun a bullish phase from a seasonal standpoint. November remains the best-performing month overall dating back to 1950, as well as the top month in election years. The Dow has advanced in 11 of the last 18 election years, sporting an average gain of 2.3%. The S&P 500 also ranks the month of November best with a similar record to the Dow.

Looking a bit further out, stocks have now entered their best 3 months from a historical perspective. The Nasdaq has enjoyed an average return of 6.2% during the November-January stretch (dating back to 1971). That’s why this 3-month period has been dubbed the ‘bull zone’:

Image Source: Zacks Investment Research

The Nasdaq has been higher 75.5% of the time over this 3-month stage. And during election years, the November-January months have been higher 76.9% of the time, towering above all other similar periods.

Now with stocks at all-time highs, it’s somewhat normal to be apprehensive in terms of buying at these levels. The prevailing thought in most investors’ minds is – why not just wait for a correction and buy at lower prices?

But history has repeatedly shown us that buying at all-time highs can be very lucrative. The ability of stocks to surpass former resistance levels and break out to all-time highs is a key signal. Remember, stocks are a leading indicator when it comes to the economy.

Final Thoughts

The stock market has withstood many different administrations over the last century. It’s clear that no president – Democrat or Republican – has enough sway to single-handedly control the $57 trillion stock market.

Election uncertainty rarely lasts long, and the major US indices typically recover from any pre-election weakness. That appears to be happening more quickly than normal as markets respond favorably to the deregulation theme.

On top of that, we have now entered the best 3-month stretch for stocks. The light at the end of this election tunnel has arrived.

Be sure to take advantage of all that Zacks has to offer as markets adapt to the new reality.