S&P 500; US Indexes Fundamental Forecast – November 10, 2016

After a tumultuous day of trading, U.S. stocks surged more than 1 percent on Wednesday after Republican Donald Trump surprisingly defeated Democrat Hillary Clinton in the U.S. presidential election.

After a sharp plunge in the major stock indices due to uncertainty over the outcome of the election, the markets recovered to close within 2 percent of their all-time highs. The rally in the Dow and the S&P 500 Index was primarily driven by steep gains in the financial and healthcare sectors. These two sectors were singled out because they represent two areas of the economy that are expected to benefit from the Republican control of the Office of the President and Congress.

In the cash market, the Blue Chip Dow Jones Industrial Average closed at 18589.69, up 256.95 or +1.40%. The benchmark S&P 500 Index came in at 2163.26, up 23.70 or +1.11%. The tech-based NASDAQ Composite finished at 5248.37, up 54.88 or +1.06%. The popular E-mini S&P 500 Index closed at 2160.30, up 24.80 or +1.16%.

Forecast

There is likely to be more volatility over the next few days as investors unwind positions and hedges so we could continue to see two-sided trading. In this case, the market is likely to be driven by price action, momentum and other technical indicators. I think investors are going to pay less attention to the traditional fundamentals until the volatility calms down.

Investors may be positioning themselves in stocks that they feel may benefit from Trump’s economic proposals. These include financial, healthcare, materials and construction stocks.

Basically, the stock market may take on a different identity during the Trump administration. Some of Wednesday’s price action was related to sector rotation out of secular growth stocks into cyclical growth stocks.

Secular stocks are stocks that are associated with relatively long periods of time rather than short-term trends. Cyclical stocks follow cycles of spending. This essentially means the market believes Trump will attempt to rebuild America with building projects, road repairs, and basic infrastructure. This could lead to lower demand for tech stocks.

Look for the volatility to continue over the short-term due to position-squaring and stock rotation.

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