The VIX fell 22%, reflecting investor optimism, despite potential inflation and Federal Reserve risks flagged by economists.
The S&P 500 and Dow Jones Industrial Average surged to record levels on Wednesday after Donald Trump was elected as the 47th U.S. president.
In Congress, Republicans clinched a majority in the Senate, while the House race remains close. As of Wednesday morning's tabulations, Republicans held 198 seats versus 180 for Democrats.
The S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust SPY, climbed 2% to 5,900 points, while the Dow soared over 3% to 43,500 points. The blue-chip index, monitored through the SPDR Dow Jones Industrial Average ETF DIA, marked its biggest single-day gain since November 2022.
The financials and industrials sectors were the top performers, up 5.2% and 3%, respectively.
The tech-heavy Nasdaq 100 witnessed smaller gains, up 1.8%, while small-cap stocks skyrocketed, with the Russell 2000 index spiking over 5%.
The CBOE Volatility Index (VIX), often called the "fear gauge," plummeted 22%, indicating waning investor concerns amid post-election optimism.
Investors are responding positively to the prospect of more lenient tax policies under the upcoming Trump administration, though inflation risks and potential shifts in Federal Reserve policy highlighted by economists seem to be largely overlooked by the market for now.
Economic Implications Of A Trump Presidency, Goldman Sachs Weighs In
"If Republicans secure a narrow House majority, this would likely enable a full extension of the 2017 tax cuts, set to expire in 2025, potentially with some reinstated business investment incentives," wrote Jan Hatzius, Goldman Sachs' chief economist.
A Republican-controlled Congress may also drive increased federal spending, particularly on defense, Goldman Sachs indicated.
"We would expect Trump to impose additional tariffs averaging 20% on imports from China," Hatzius added, highlighting that this policy could provide a "one-time boost to core PCE inflation" and "a modest drag on GDP."
Goldman Sachs projects that the incoming Trump administration would likely pursue a more relaxed approach to regulation, especially in energy, financial services, and labor.
However, while antitrust oversight may soften somewhat, scrutiny of the tech sector is expected to persist.
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