MW Stock futures surge and these areas 'likely market winners' as Republicans may sweep

By Christine Idzelis

'Markets will price in a future pro-growth policy agenda,' according to Sevens Report Research

Stocks appeared set to rally Wednesday, with small-cap equities and cyclical sectors likely market winners after Donald Trump won the U.S. presidential election and voting results pointed to a potential Republican sweep in Washington, according to Sevens Report Research.

Futures contracts for the Dow Jones Industrial Average (YM00) were up 3% on Wednesday morning, while S&P 500 futures (ES00) jumped more than 2%, according to FactSet data, at last check.

"Futures are surging as a Republican sweep is the likely election outcome," said Tom Essaye, the founder and president of Sevens Report Research, in a note Wednesday. "This likely 'green lights' a solid year-end rally as long as growth and the Fed perform as expected."

The note described the Republican agenda as favoring "pro-growth policies," citing tax cuts, deregulation, "a focus on domestic industries and negotiating better trade relationships."

Essaye pointed to several exchange-traded funds as "the likely market winners from this policy stance," including Vanguard Value ETF VTV, which invests in large-cap value stocks in the U.S. and the small-cap equities-focused iShares Russell 2000 ETF IWM.

As for industry-specific bets, Industrial Select Sector SPDR Fund XLI, iShares U.S. Aerospace & Defense ETF ITA, Energy Select Sector SPDR ETF XLE and Materials Select Sector SPDR ETF XLB may be winners, according to the note.

Essaye also said other areas of the market captured by the SPDR S&P Bank ETF KRE, iShares U.S. Financial ETF IYF and SPDR S&P Insurance ETF KIE would benefit from a Republican sweep.

"Markets will price in a future pro-growth policy agenda and also price in a likely full extension (and possible increase) of the Tax Cuts and Jobs Act," he wrote.

"In 2016, the Republican sweep led to a 4.5% rally into year-end and given the currently positive macroeconomic backdrop of solid growth, falling inflation and looming Fed rate cuts," said Essaye, "a rally to, and through, 6,000 in the S&P 500 before year-end is entirely possible."

The S&P 500 SPX closed Tuesday at 5,782.76 for a year-to-date gain of 21.2%, according to Dow Jones Market Data.

-Christine Idzelis

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November 06, 2024 09:01 ET (14:01 GMT)

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