Trump's return boosts US markets, lifting banks and small-cap stocks

Donald Trump's return as US president for the second time on Wednesday boosted equity markets on bets of lower corporate tax, favorable tariffs and deregulation, lifting shares of banks, locally focused small-cap companies and Trump Media.

His promise to make Tesla CEO Elon Musk head of a government efficiency commission after the billionaire backed Trump throughout his electoral campaign led to a 14.7% surge in the shares of the electric automaker.

Wall Street's main indexes opened at record highs, while the small-cap Russell 2000 index jumped about 4% to its highest in nearly three years.

"The market believes a Trump presidency will unleash animal spirits and give a boost to growth in the short-term through some relief on corporate taxes and deregulation," said Frédérique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia.

Trump Media & Technology Group, in which Trump owns a majority stake, soared nearly 24% before trading was halted. Investors overlooked the company's latest quarterly results that showed the Truth social parent's revenue was just $1 million.

The shares have more than tripled in value from their all-time lows in late September, and Trump's stake was worth about $4.8 billion. The company's nearly $8.4 billion valuation is detached from its day-to-day business, analysts have said.

Policy details awaited

Trump's Republican Party also secured the Senate and was making gains in the House of Representatives, potentially making it easier for the president to legislate his proposals and push through key appointments.

Markets "have priced in a pretty strong mandate for the Republicans and are biasing toward most of the Trump trades", said Scott Chronert, US equity strategist at Citi.

"Policy details will be important for here as the market focus seems to be putting more emphasis on deregulation, tax cuts, and a more business-friendly backdrop."

Wall Street lenders JPMorgan Chase, Bank of America and Goldman Sachs jumped between 8% and 13.3% on prospects of improving domestic investment and looser regulations spurring deals.

Victory for Trump, who has positioned himself as pro-cryptocurrency, lifted bitcoin to a record high. Crypto-linked stocks Coinbase, MicroStrategy, Riot Platforms, MARA Holdings jumped between 10% and 19.7%.

Private prison operators Geo Group and CoreCivic jumped about 28% each as Trump's promised crack down on illegal immigration could boost demand for detention centers.

US steel makers Cleveland-Cliffs, Steel Dynamics and Nucor surged between 10.4% and 16.4%, with analysts having noted in the run-up to the election that a Trump presidency may mean rising protections for the domestic steel industry.

Autos, energy and China

While Tesla shares surged on Musk-Trump proximity, stocks of other electric automakers dipped as Trump had said he would consider ending a $7,500 tax credit for EV purchases.

Rivian Automotive dropped 7.3% and Nikola slipped about 6.2%.

"Nobody is making money in EVs aside from Tesla, so the reduction or elimination of EV credits will widen Tesla's competitive moat," said Garrett Nelson, senior equity analyst at CFRA Research.

Shares of US automakers Ford and General Motors were up 3.4% and 1.7%, respectively.

Oil majors Chevron rose about 2%, while US renewable energy companies such as NextEra Energy and First Solar plunged 5.2% and 15.7%, respectively.

Trump's presidential campaign laid out an energy policy platform centered around maximizing US fuel and power output, in part by dismantling the current administration's centerpiece efforts to fight climate change.

Fears of escalation in Sino-US tensions pressured US-listed China shares with iShares MSCI China ETF dropping nearly 3.1%.

Import duties, including a 10% universal tariff on imports from all foreign countries and a 60% tariff on imports from China, are a key plank of Trump's policies and likely to have the biggest global impact.