By almost any measure, November has been a blockbuster month for U.S. stocks.
Following a Republican “Red Sweep” on Nov. 5, optimism surrounding President-elect Donald Trump’s “America first” agenda has revived what some have described as “animal spirits” in markets, helping to push major indexes like the S&P 500 and cryptocurrencies like bitcoin to record highs.
So far, investors appear to be focusing on Trump’s pro-business agenda, which features plans for corporate tax cuts and deregulation. While some on Wall Street have expressed concern about potential blowback from Trump’s promised tariffs, so far, the market appears to be treating his trade threats as an opening salvo in a negotiation, according to Danny Kirsch, head of options at Piper Sandler, who spoke with MarketWatch on Friday.
At least, that was the case earlier this week, after Trump took to Truth Social on Monday to threaten tariffs against China, Mexico and Canada. The Mexican peso USDMXN and Canadian dollar USDCAD tumbled, along with stocks trading in both those countries. But U.S. stocks mostly shrugged it off.
“This deregulation America-first sort of policy for now at least is sort of resonating,” Kirsch said.
“It seems to have reignited animal spirits.”
Just as the rally appeared to be fading earlier this month, Trump’s decision to select Scott Bessent as his nominee for Treasury Secretary helped give it a boost. Bessent has advocated cutting the federal budget deficit to 3% from 6.4% during the 2024 fiscal year, according to data from the Congressional Budget Office.
Since he was announced as Trump’s pick, the yield on the 10-year Treasury note BX:TMUBMUSD10Y has erased a postelection pop that was making some traders nervous.
Bitcoin finished November just shy of the $100,000 mark, while the S&P 500 SPX, Dow Jones Industrial Average DJIA, and Nasdaq Composite COMP tallied their best monthly advances in a year.
Both the S&P 500 and Dow finished November in record territory, notching their 53rd and 47th record closes of the year, according to Dow Jones Market Data.
The big winners in November were small- and mid-cap stocks, with shares of regional banks KRE performing particularly well.
The Russell 2000 RUT, a popular index of small-cap companies, advanced more than 10% in November, its best month since December 2023, while the S&P Mid Cap 400 MID rose 8.7%, its best showing since June 2023. Their advance in November helped narrow a performance gap with large-cap stocks that had persisted all year.
Several large-cap sectors closely associated with the “Trump trade” were also big winners. Both consumer discretionary stocks and financials in the S&P 500 racked up double-digit gains in November. Energy stocks gained more than 6%, even as crude-oil prices declined. Trump has nominated Chris Wright, a longtime fossil-fuel executive, to serve as his energy secretary.
To be sure, there were losers as well. Healthcare stocks were the worst-performing sector in November. Shares slumped after Trump announced he would nominate Robert F Kennedy Jr. to be the secretary of health and human services. By the time the market closed on Friday, the sector was barely in positive territory for the month.
Although some areas already appeared to be bouncing back. As Kirsch pointed out, biotech stocks have clawed back most of their declines from earlier in November, with the SPDR Biotech ETF XBI rallying over the past two weeks.
Clean-energy stocks have also gotten whacked, with the iShares Global Clean Energy ETF ICLN falling more than 5%.
Traders can point to myriad signs of pervasive optimism in U.S. markets, from sentiment surveys showing a record share of consumers expect stocks to climb over the next year, to a decline in the so-called put-call ratio in options contracts tied to the S&P 500, which indicates decreased trading in bearish put options.
Although some traders appear to be loading up on protection against extreme market swings, this is likely a precaution to preserve their portfolio gains after a strong year for markets, Kirsch told MarketWatch earlier this week.
See: Traders are loading up on protection against extreme moves as stocks zoom higher
But while U.S. stocks have soared, shares trading in Europe and emerging markets like China FXI and Mexico EWW have struggled since Trump’s electoral victory.
Despite these signs of unbridled optimism, some say markets could be overlooking certain risks.
For example, the Federal Reserve’s official inflation gauge, released earlier this week, appeared to confirm that inflation has stabilized above the central bank’s 2% target. The critical core rate of inflation saw its first increase since June, according to the PCE Price Index, released earlier this week.
Should inflation re-accelerate, it could create problems for stocks in 2025, said George Cipolloni, a portfolio manager at Penn Mutual Asset Management.
“Disinflation appears to be in the rear view mirror,” Cipolloni said in response to emailed questions from MarketWatch.
