Despite early fears, stocks rally after Trump win

Stocks saw solid gains Wednesday, defying expectations of a slump in financial markets following Donald Trump ‘s stunning victory in the the U.S. presidential race.

Global markets, which had been jittery over the prospect of a Trump administration in recent weeks, plunged overnight after it became apparent that he was leading at the polls. 

The Dow Jones industrial index flirted with record territory, shooting up 257 points, or 1.4 percent, to close at 18,589. The Standard & Poor’s 500 index rose 24 points, or 1.1 percent, to 2,163. The Nasdaq composite added 58 points, or 1.1 percent, to 5,258.

U.S. bond yields have surged in the wake of Trump’s victory, a sign that investors think the outlook for the U.S. economy remains positive.

The yield, or interest rate, on the U.S.’s ten-year bonds is up 0.08 percentage point at 1.948 percent. That has helped the dollar recover its poise following earlier losses when Trump’s victory became increasingly likely. The euro, for example, is now basically flat on the day at $1.1025.

European stocks also closed higher after markets recovered from early losses. Germany’s DAX ended the day 1.6 percent higher at 10,646.01 while Britain’s FTSE 100 gained 1 percent to 6,911.84. France’s CAC 40 rose 1.5 percent to 4,543.48. All the indexes were lower earlier in the day.

One reason investors may be signaling their approval is that Trump’s election could short-circuit possible plans by the Federal Reserve to raise interest rates as early as December, as many Wall Street analysts had expected. 

Trump also sounded a conciliatory tone in his victory speech, encouraging hope that he could moderate some of his more extreme positions once in the White House. 

“[W]e doubt that Trump will follow through fully on his threats to impose large trade tariffs on Mexico or China, or to withdraw from existing deals (even though he does have a lot of leeway to do so without congressional approval),” economists with Capital Economics said in a client note.

Still, the outcome of the election proved a massive surprise for economic and market analysts, who overwhelmingly predicted a victory for Democratic nominee Hillary Clinton. 

The result also delivered a historic electoral mandate for Republicans, who will have control of Congress beginning in January. The last time Republicans controlled the White House, Senate and House was in 1928, when California Republican Herbert Hoover beat New York Democrat Al Smith.

Investors scrambled Monday to digest the impact of the election on issues including global trade, taxes, monetary policy, health care, financial regulation and immigration.

The gains Wednesday were led by drugmakers, which would have faced the likelihood of price controls under Clinton. Pfizer (PFE) jumped soared 8 percent, the biggest gain on the Dow.

Hospital operators sank. Trump has promised to repeal the Affordable Care Act. HCA Holdings (HCA) plunged 14 percent.

“Trump’s victory in the presidential election is likely to bring a set of policies that diverge sharply from those of the prior administration,” said Robard Williams, senior vice president of Credit Strategy and Standards at Moody’s Investors Service, in a note.