The stock market on Wednesday saw one of its biggest one day gains and the bond market (i.e., a rise in interest rates) one of its biggest one day routs. But those stock market gains were not across the board. Some sectors did dramatically better than others and some cratered. Here are a few observations:
1. The dramatic rise in interest rates reflects an expectation that we are going to be seeing significant inflation. Confirming evidence comes from the utility sector having a large sell off as did the home builders and things related to housing (e.g., the price of copper plummeted).
2. Those interest rate rises might also be seen as a reflection of a fear that the Fed will lose its independence while the federal deficits and debt explode. Powell expressly said that, under the law, the president was "not permitted" to fire him (although the law does permit the president to fire him for "cause").That said, Powell's term is up in a year which gives him additional independence in the meantime because he knows he will not be renominated, but spooks the bond market given whom Trump might nominate to replace Powell when his term is up.
3. The banks had enormous gains, in part due to the steepening of the yield curve, but more likely because they see de-regulation coming their way. Other sectors that would see profits rise by de-regulation in their sectors (e.g., the oil and gas industry) saw similar gains.
4. Tesla surged but not because EVs in general are going to blossom. Rather, it is because investors see policies coming that will benefit Tesla over its competitors. That is confirmed by the steep slide seen in the stock of other EV makers and EV charging station makers.
5. That investors were pouring money into the market as measured by inflows can be seen as their being assured that the current individual tax breaks for the wealthy will be extended and the corporate tax rates will not be raised and might even be cut.
6. Gold dropped as did the so-called "fear index" or "volatility gauge" likely because the uncertainty and violence that would have resulted if the election were contested had been removed.
7. The near certainty of tariffs, tariff wars, and trade wars drove gains in industries that would prosper (e.g.., industrials, steel, and machinery) while driving losses in sectors that will suffer (e.g., consumer staples and goods that are manufactured overseas and ocean freight firms that would bring those products).
8. The dollar gained and foreign currencies dropped in expectation of Americans spending less on foreign goods.
PS: It doesn't take a weatherman to caution not to judge what the markets will do in the future by what they did on any day or in the past.
[EOP]