‘Animal spirits’: 7 market strategists share how to ride the red wave as US stocks surge to new records

Donald Trump won the presidency, though not quite as easily as he got the Republican nomination.

Wall Street is in love with Donald Trump, as if there was ever any doubt.

A robust, multi-year bull market rally for US stocks reached another gear after the businessman-turned-politician won the presidential election. The S&P 500 just topped 6,000 for the first time ever, and the tech-focused Nasdaq Composite is also in uncharted territory.

Traders are convinced that the bulk of Trump’s economic policies, which include tax cuts and fewer government regulations, will create a business-friendly backdrop that drives stocks higher.

“Investor sentiment is pro-growth, pro-deregulation, and pro-markets,” said David Bahnsen, the chief investment officer at The Bahnsen Group, in recent commentary sent to B-17.

‘Animal spirits’ have been unleashed

While some are skeptical of the consensus view, including those who are terrified about tariffs, it looks as if investors broadly are scrambling to add exposure to equities. A staggering $22 billion flowed into exchange-traded funds on Wednesday, which was more than four times higher than the previous record for the day after the US election, according to State Street Global Advisors.

Markets may hate uncertainty even more than tax hikes, so it’s possible that a Kamala Harris win also could have sparked a relief rally.

But that might dismiss how ecstatic big-money investors are about another Trump term, given that the S&P 500 rose over 50% from his victory in 2016 until shortly before the pandemic.

“Business animal spirits could be rekindled once again from Trump’s pro-business approach, which could lead to a more robust capital expenditures and investment environment,” said Jeff Schulze, the head of economic and market strategy at ClearBridge Investments, in commentary.

That term, “animal spirits,” was coined in the 1930s by famed economist John Maynard Keynes, who remarked that investors’ decisions are often driven by intense emotions like greed and fear.

Anthony Saglimbene, Ameriprise’s chief market strategist, borrowed Keynes’ famous phrase to make the same point as Schulze: investors may be euphoric for the foreseeable future.

“Animal spirits through year-end could push major averages higher as the overhang of the election is removed and investors look to put excess cash to work in stocks,” Saglimbene said in commentary.

How to invest after Trump’s win

Although the US economy looks healthy by most measures, many market strategists are counting on an even bigger boom under Trump that would benefit economically sensitive stocks.

“This broad ‘risk-on’ mood for the U.S. stock market is cutting across all sectors, but particularly favoring more cyclically sensitive sectors that would benefit from a re-strengthening of the economy and tailwinds to corporate profitability,” said Jim Baird, the chief investment officer at Plante Moran Financial Advisors, in written commentary sent to B-17.

Sectors that are heavily reliant on economic growth, like energy and financials, will stay hot, said Sébastien Page, the head of global multi-asset at T. Rowe Price, in a recent interview.

“I don’t think it’s over the top,” Page said of the postelection market rally.

Several of the strategists and investment chiefs that B-17 leaned on for this story also cited small caps as a top idea, provided that the economy stays strong and taxes fall.

“Enough people had been worried about, ‘Could we have a credit cycle? Could we have an economic slowdown into next year? What would increases in taxes and regulation do?'” said Sean Gallagher, the global head of Lazard’s small-cap equity platform, in an interview.

He continued: “Now that’s off the table. I think it just increases small-business optimism. I think it’ll increase CapEx, which has been kind of held back.”

Smaller companies performed admirably early on in Trump’s first tenure, though they’ve lagged large caps for years. Gallagher is highly optimistic about the group again, both because of the economic environment and their valuations, which are startlingly cheap relative to their peers.

Schulze from ClearBridge is also aboard the cyclical and small caps train. The strategist is fired up about what Trump’s penchant for lower taxes and limited regulations means for industrials, consumer discretionary stocks, and financials.

Saglimbene from Ameriprise concurred again that “the backdrop for financials could improve, as less regulation and the potential for merger/acquisition and capital market activity accelerate.”

Add the technology sector to the list of winners from less governmental oversight, Bahnsen said. Tech companies seem like a clearer beneficiary since the Federal Trade Commission (FTC) should be less hostile to their interests.

For all the optimism in markets, some strategists are branching out from stocks.

Jim Thorne, who’s the chief market strategist at Canada-based wealth management firm Wellington-Altus, said in commentary that he’s most interested in gold and bitcoin, which some have referred to as the yellow metal’s digital doppelgänger.

The world is awash with cash, making scarce assets like gold and bitcoin more valuable, and Thorne also noted that global economic growth is slowing. That suggests that the path forward for risk assets may not be smooth — even if Trump is successful in his second term.

“Investors should brace for volatility and shifts in market leadership as we transition to a peacetime economy, shaped by Trump’s policies,” Thorne said in written commentary.