The good news: Since November 7th, the S&P 500 is up almost 6% and small cap stocks are up twice that. The not-so-good news: The stock surge since Election Day has hidden the bond market's recent slump.
The slump began over the summer but accelerated following the election. Since then, the yield on the 10-year Treasury bond, a key benchmark, has risen almost 35%, from about 1.7% to 2.3% (rising yields mean falling prices). In terms of actual investment impact, the broad bond market index is down about 2.5% since November 7th. Short-term bonds are down about 1.5%, but long-term bonds, which feel the impact of rate changes more dramatically, are down over 5%. That's a big move in the bond world and more may be coming.
Much has been written about the market's surprising reaction to last week's even more surprising election results. Let's look at some of the interesting aspects of what happened in the markets and address some of the reasons why.
First, analysts got it wrong when it came to how markets would react following a Trump victory. The prevailing wisdom was that such an outcome would send stock prices into a tailspin. Not a crash, but definitely a bout of downside volatility as investors worked through the uncertainty of a Trump Administration. While this did happen overseas and in the futures markets during election night, by Wednesday morning the market opened flat and then began a surge that lasted most of the week. U.S. stocks ended the week up from 4-10%, depending on the index.
As you have likely heard, U.S. stocks posted their ninth losing day in a row last Friday. The S&P 500 declined 2.24% during this stretch, almost entirely due to pre-election jitters and negative headlines from both candidate's camps.
None of the daily moves were huge, but there was a steady and disappointing increase in pessimism across markets. All 11 sectors were affected, some more than others. Health Care, for example, fell almost 4%, while Materials and Industrials declined by less than 0.5%.
