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US small-caps among the top risers after Trump victory

Last updated: 16:30 09 Nov 2016 EST, First published: 03:30 09 Nov 2016 EST

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US stocks snapped back from initial losses to close Wednesday higher and the Dow even managed an intraday record peak, while small-caps had one of their best days in 14 years, after Donald Trump and the Republicans’ sweep into office.

The S&P 500 market bellwether ended up 1.1% at 2163 and led by Financials amid expectations that a Trump administration would ease Wall Street regulations – if not provide an early platform for a badly-needed rate hike to boost their balance sheets.

Pharmaceutical and biotechnology groups also performed well given the tough stance on drug-price rises taken by Hillary Clinton, the Democratic candidate.

The S&P Midcap 400 closed up 1.8% at 1540 and the best gains came from the S&P Smallcap 600, which bounced 3.1% higher to 748. The S&P 600 last had a surge, worth 5.6%, on July 29, 2002 when the ticker was just seven years old.

Meanwhile, the wider small-cap Russell 2000 also had a strong day, up 3.1% to 1232. It too burst 4.9% higher on July 29, 2002.

Across the border in Canada things were less euphoric. Trump wants to renegotiate NAFTA, the free trade deal with Canada and Mexico. Toronto’s TSX Composite closed up 0.7% at 14,759.


Early trading

US stocks opened softer on Wednesday in the wake of Donald Trump’s White House win and even briefly spiked into positive territory.

The S&P 500 market bellwether was down 0.2% at 2135, a far cry from the heavy sell-off expected. Last Friday, brokers at Citigroup had forecast an immediate 5% drop by the S&P 500 followed by economic recession.

One of the top gainers was pharma Endo International (NASDAQ:ENDP) up 10.1% at $15.99 after overnight reporting better-than-expected third-quarter 2016 earnings of $1.01 per share; revenues too surpassed expectations.

Pharma stocks were also doing well in the wake of Trump’s victory as he is seen as hands-off drug companies over pricing and stiff regulation.

One of the top decliners was Tripadvisor (NASDAQ:TRIP) down 16.8% at $52.50 as it reported adjusted third-quarter 2016 earnings overnight of 41 cents per share, which missed the Zacks Consensus Estimate by a cent.

The S&P Midcap 400 lost 0.1% to 1511 and was led lower by Tenet Healthcare Corp (NYSE:THC), down 27.9% to $14.62. On the upside, Corrections Corporation Of America (NYSE:CXW) was up 34.5% to $19.09 as its shares suffered a correction of their own a day after its earnings report.

The S&P Smallcap 600 was up, defying other tickers, by 0.2% to 727 and led by Geo Group Inc (NYSE:GEO) up 17.9% to $28.15.

In Canada, the TSX Composite Index was up 0.3% to 14,704 and led by Aimia Inc (TSE:AIM), up 11.2% to C$7.93 after Avis Budget Group, Inc. (NASDAQ:CAR) and Aimia announced that Avis Budget Group will become the exclusive car rental partner of Aeroplan, Canada's premier coalition loyalty program, starting in the first half of 2017.


Pre-Open

US stocks are seen falling as much as 1.3% on Wednesday as investors assess the surprise Republican Donald Trump presidential victory and the clean sweep of Congress.

US markets normally sell-off after an election, regardless who wins, but when it is a candidate who has not built bridges to Wall Street, it can be more difficult to stomach.

Trump’s sensational stampede had only one consolation for rival Hillary Clinton in that she enjoyed a slightly larger share of the popular vote. With 97% of votes counted, Trump secured 276 electoral votes around the United States compared with Clinton’s 218. But Clinton commanded 59,177,303 votes – slightly more than Trump’s 59,041,250. They both have 48% of the vote each.

But with the Republicans also securing the Senate and holding onto their bastion of the House of Representatives, Trumps biggest headache could still be the columns of his party faithful whom he alienated in his quest for his nomination. Last night, even his Texan rival Ted Cruz was forecasting a Clinton win and that a fresh Republican candidate needed to be sought for the 2020 election.

But markets are not holding out too much hope for a gridlock to keep Trump’s untested policies in check, as he will be able to replace members of the Supreme Court and thus brush away outgoing President Barack Obama’s decrees.

Trump made an impromptu victory speech from New York which appeared to calm global markets and even gave London’s FTSE 100 index, not a stranger to upsets and surprise votes this year, a chance to pare losses if not wipe them out.

However, the speech, in which Trump said he would usher in "the strongest economy anywhere in the world" and “be a President for all America” he has promised big tax cuts, lots of spending on roads and bridges infrastructure and "America First" economics -- a crackdown on trade and immigration.

So far, the S&P 500 index is indicated down 1.3%.

But already pre-market there have been predictions for as much as a 10% to 15% stock market slump. Since World War II, the stock market has performed better when a Democrat is in the White House (9.7% average annual gain) versus a Republican (6.7% average annual gain), although Trump isn't typical and will need to heal wounds with the Republicans’ top brass, including the Bush political dynasty whose son Jeb Bush lost out in primaries earlier in the campaign.

Trump himself has warned the stock market is in a "big, fat, ugly bubble," and he has been ardent that he wants to replace Janet Yellen as the head of the Federal Reserve.

This also puts at risk plans for a possible US rate hike next month, as turmoil in politics is not a good backdrop to raise the price of credit. So banks, desperate for a balance sheet-correcting rate hike might be kept waiting.

Evidence of that came from bond investors early on, as they dumped 10-year and 30-year government debt in favour of interest rate-sensitive two-year Treasuries, pushing yields lower and steepening the yield curve as investors sensed bets for a hike are now off.

Pro-guns Trump also led to shares in Sturm Ruger & Company (NYSE:RGR) seesawing higher. But in a shock to the system, its shares were later down 7.3% at $59.70. Overnight news landed that director Phillip Widman sold 4,049 shares of the stock in a transaction dated Monday, November 7, a day before polling

Meanwhile, gun maker Smith & Wesson (NASDAQ:SWHC) which earlier climbed nearly 7% was pointing to a 10.4% loss at $25.49. However, earlier on Wednesday it was reported that shares of Smith & Wesson have received an average rating of “Hold” from the eleven analysts that are covering the stock. Which seems a bit mean since they will have long-term sales rather than panic buying on a Clinton victory.

So, in theory, gun makers might sleep soundly, and pharma stocks were – on the face of it – looking well-bid.

Trump’s victory overnight sent shares in top drug companies like Mylan (NASDAQ:MYL) up 6.3% at $39.45 pre-market and Pfizer (NYSE:PFE) up 8.2% at $32.46. Merck (NYSE:MRK) was up 4.4% at $63.14 and Johnson & Johnson (NYSE:JNJ) up 2% at $119.34 while Eli Lilly (NYSE:LLY) rose 3.4% to $76.52.

Even beleaguered Valeant (NYSE:VRX), which shed more than a fifth of its value on Tuesday after warning its profits and sales would continue to tumble next year, bounced back 2.8% to $15.40.

But the pharma sector could still be in for a shock. While Clinton was vocal in criticising drug prices, Trump campaigned to scrap Obamacare and replace it with a more "free market" plan that allows insurers to sell policies across state lines. He says he'll work with a Republican Congress to finalise details, but he wants to allow those who buy health coverage outside of their jobs to deduct their premium costs.

Meanwhile, having dropped more than 2% in the early hours of Wednesday morning, the dollar index, which tracks the buck’s value against a basket of other major currencies, is now down only 0.04%.

Markets might also get a wobble at the Wall Street opening as the Democratic nominee for president and former secretary of state, senator and first lady will deliver remarks at 9:30 am in New York, according to a statement from her campaign.

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