By Medha Singh
(Reuters) -Donald Trump's return as U.S. president boosted equity markets on Wednesday on bets of lower corporate tax, favorable tariffs and deregulation, lifting shares of banks, locally focused small-cap companies and Trump Media.
His promise to make Tesla (NASDAQ:TSLA) CEO Elon Musk head of a government efficiency commission after the billionaire backed Trump throughout his electoral campaign led to a 14% surge in shares of the electric automaker.
Wall Street's main indexes opened at record highs, with the Dow Jones industrial average last up more than 3% and the S&P 500 more than 2% higher. The small-cap Russell 2000 index jumped about 4.8% to its highest in nearly three years.
"Business animal spirits could be rekindled once again from Trump's pro-business approach which could lead to a more robust capital expenditures and investment environment," said Jeff Schulze, market strategist at ClearBridge Investments.
Trump Media & Technology Group, majority-owned by Trump, was up about 6% shortly in afternoon trading. Investors overlooked the company's latest quarterly results that showed the Truth Social parent's revenue was just $1 million.
The stock has more than tripled in value from its all-time lows in late September. Trump's stake of nearly 115 million shares, based on the latest filings, is worth roughly $4.2 billion compared with $3.9 billion on Tuesday.
POLICY DETAILS AWAITED
Trump's Republican Party also secured the Senate and was making gains in the House of Representatives, potentially making it easier for the president to legislate his proposals and push through key appointments.
Markets "have priced in a pretty strong mandate for the Republicans and are biasing toward most of the Trump trades," said Scott Chronert, U.S. equity strategist at Citi.
"Policy details will be important for here as the market focus seems to be putting more emphasis on deregulation, tax cuts, and a more business-friendly backdrop."
Wall Street lenders JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) jumped between 8% and 12% on prospects of improving domestic investment, looser regulations and more deals.
"There is an expectation that the regulatory landscape will ease under the Trump administration" and that is helping financials' shares, said David Ellison, portfolio manager at Hennessy Funds, which holds several bank stocks.
Greg Hertrich, head of U.S. depository strategies at Nomura, said one of the biggest questions is how Basel III, a set of global banking regulations, will be implemented by the next administration.
The latest version of the proposal called for a 9% rise in banks' capital. "Whether the banks will need 9%, 6%, 4% or 0% more capital creates very different scenarios," he said.
Hertrich also noted that the proposal could speed up U.S. bank mergers.
Semiconductor stocks advanced, with a chipmaker index up 2.3% and artificial intelligence darling Nvidia (NASDAQ:NVDA) gaining 3.5% despite Trump's criticism of the U.S. CHIPS and Science Act, which supports domestic chip manufacturing through subsidies.
Trump has instead proposed tariffs on imported chips, particularly from Taiwan's TSMC, whose U.S.-listed shares dropped 2.3%.
The S&P 500 energy index was last up 3.5%, while U.S. renewable energy companies such as NextEra Energy (NYSE:NEE) and First Solar (NASDAQ:FSLR) plunged.
Trump's campaign laid out an energy policy platform centered around maximizing U.S. fuel and power output, in part by dismantling the Biden administration's efforts to fight climate change.
AUTOS, CRYPTO AND CHINA
While Tesla shares surged on Musk-Trump proximity, stocks of other electric automakers dipped as Trump had said he would consider ending a $7,500 tax credit for EV purchases.
Rivian Automotive (NASDAQ:RIVN) dropped 10% and Nikola slipped about 3.6%.
Fears of escalation in Sino-U.S. tensions pressured U.S.-listed China shares with iShares MSCI China ETF dropping 2.4%.
Import duties, including a 10% universal tariff on imports from all foreign countries and a 60% tariff on imports from China, are a key plank of Trump's policies and likely to have the biggest global impact.
Victory for Trump, who has positioned himself as pro-cryptocurrency, lifted bitcoin to a record high. Crypto-linked stocks Coinbase (NASDAQ:COIN), MicroStrategy, Riot Platforms (NASDAQ:RIOT), MARA Holdings jumped.
Shares of private prison operators Geo Group and CoreCivic hit their highest levels since 2019. Geo was last up 39% and CoreCivic jumped 32% as Trump's promised crack down on illegal immigration could boost demand for detention centers.
U.S. steel makers Cleveland-Cliffs, Steel Dynamics (NASDAQ:STLD) and Nucor (NYSE:NUE) surged, with analysts having noted in the run-up to the election that a Trump presidency may mean rising protections for the domestic steel industry.
Retailers' shares fell on concerns over possible tariff proposals.
Shares of Wayfair (NYSE:W) dropped 14.5%, while Home Depot (NYSE:HD) and Lowe's each fell nearly 4%.
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