In our previous post, we reviewed how the exchange rate of the US Dollar moved after the presidential election. Now we take a closer look at the US Stock Market.
As Republican candidate Donald Trump was elected the 45th president of the United States on November 9, 2016, futures on the Dow Jones Industrial Average fell about 4% within a few hours. This was exactly what the market expected in case of his win. But the situation changed by the time the New York Stock Exchange opened on the next day: investors became very optimistic about the policies of the new President-elect.
The rising trend has been continuing since that time: Dow Jones Industrial Average increased from 18,332 (closing price on November 8th) to 19,083 on November 23rd. The US stock market is still optimistic, the Dow Jones Index showed its biggest weekly rise in 5 years. This wasn’t supposed to happen. This is a surprising outcome by all means.
The American Association of Individual Investors carried out a survey during the week ended November 16. And found that 46.7% of investors surveyed were bullish on stocks. This is the highest level in 21 months. What is the reason of this unforeseen development?
Why did investors change their minds?
People expect that a new political era will begin. Trump announced his unconventional policies that are supposed to help US corporations grow. The real estate billionaire plans to increase infrastructure spending which can be bullish for stocks.
Analysts think that infrastructure is a key driver for productivity and growth. Increased infrastructure investments would lower unemployment, and through the increased spending of people boost gross domestic product. This would be definitely favorable for US companies, thus increase stock prices.
Furthermore, Trump’s fiscal policies will include cutting corporate and personal income taxes. A reduction in taxes would increase in the income of companies and individuals. They will have more money to spend, and this will stimulate economic activity. This is supposed to boost growth prospects of US entrepreneurs, increase the profitability of companies, and thus raise stock prices.
New opportunities in US small-cap stocks
These policies would be beneficial for smaller companies as well. This expectation is reflected in Russell 2000, the index of small-capitalization companies: it is at a record height, and extended its win streak to 11 sessions. That’s the longest such streak since 2003.
Small-cap stocks are usually considered to be more risky than large caps. Therefore, the excellent performance of the Russell 2000 index is a sign that the broader stock market is bullish. Investors are more risk acceptant now, they buy stocks of all sizes.
These are good news for binary options traders: there are big movements on the stock market, this means plenty of opportunities for trading. Traders very often focus on stocks of huge corporations, such as IBM or Microsoft. It can be really profitable to trade with binary options of these big companies, but this time it can be a good idea to trade small-cap companies as well.