Investors were beneficiaries of a "Trump Bump" in November. The S&P 500 notched its biggest monthly gain of 2024 as the stock market reacted positively to President-elect Donald Trump's clear victory and pro-growth policies.
When fears of a contested election did not come to bear, uncertainty investors dread went away. And that sparked a Trump 2.0 rally that powered the broad U.S. stock market gauge to a record high on the month's final day of trading. A resilient U.S. economy, record corporate earnings in the third quarter and a quarter-point interest rate cut from the Federal Reserve in early November added to the bullish narrative.
What's Coming In 2025 For The Stock Market?
Looking ahead to year-end and 2025, investors are betting Trump's economic policies will be bullish for risky assets. The incoming president's pledge to lower taxes for workers and U.S. companies and slash regulations to power growth has been well-received. At the same time, Wall Street is wrestling with the potentially inflationary impact and cost of Trump's threats to slap tariffs on goods imported to the U.S. and plans to deport undocumented immigrants. On the interest rate front, investors still expect the Fed to cut rates again at its meeting this month.
In November, though, politics and policy added up to profits for U.S. investors. Both stocks and bonds flashed green.
Sizing Up Stock Market Indexes
All four major U.S. stock indexes finished up. The small-cap Russell 2000 led the way, jumping 10.84%. The Dow Jones Industrial Average, which briefly traded above 45,000 for the first time, climbed 7.54%. The tech-heavy Nasdaq rose 6.21%. And the broad S&P 500, which fell in October, gained 5.73%, extending its year-to-date gain through November to 26.47%. The S&P 500 notched six record highs in November, increasing its number of closing highs this year to 53, according to S&P Dow Jones Indices.
The broad equity gains funneled down to mutual fund and ETF investors.
The average U.S. diversified equity fund shot up 7.53%, boosting its 2024 gain to 23.52%, according to Lipper Refinitiv data. Small caps posted the biggest gains. Small-cap growth funds rallied 10.93% and small value funds gained 10.01%. Midcap growth funds shined, too, rallying 10.86%. Large caps gained but lagged their smaller brethren. Large-cap growth funds rose 6.45% and large value portfolios gained 5.35%.
From a global perspective, the U.S. was the place to be. World Equity Funds eked out a small gain of 0.55% in November and are up 10.11% for 2024, Lipper Refinitiv data shows.
Wrapping Up The Year
December tends to be bullish for the stock market. Over history, the S&P 500 has posted gains 72,9% of the time in the final month of the year, with an average gain of 1.32%, according to S&P Dow Jones Indices. Wall Street 12-month price targets for the S&P 500 ticked up to 6,576, a 9% gain from November's close of 6,032, the research firm added.
David Lefkowitz, head of U.S. equities at UBS Global Wealth Management, has a year-end 2025 S&P 500 price target of 6,600 in the aftermath of the presidential election. His bullish call is driven by his belief corporate profits will remain strong next year and grow 8%. What's more, he cites the stock market tends to rise 18%, on average, in the first 12 months after the Fed's first rate cut in a soft landing scenario. Inflation ticking lower and the Fed's rate-cutting cycle are also supportive of stocks, he adds.
"The election was the big news in November," said Lefkowitz. "The fact we got a clear outcome was positive. We got some certainty in terms of the specific policies we can expect."
What Trump Means For The Stock Market
But Lefkowitz acknowledges that the Trump agenda injects a mix of headwinds and tailwinds. "Clearly, lower taxes and deregulation are generally better for growth and would be better for corporate profits," said Lefkowitz. "But at the same time, we have elevated budget deficits and tariffs are still on the agenda. Tariffs are the biggest question mark. So, it's not clear how all of this is going to come together."
All 11 S&P 500 sectors finished higher. Financials topped the performance charts in November, gaining 11.43%. Investors expect banks and other financial firms to benefit from less regulation, which could boost dealmaking and M&A activity. Financials year-to-date gain of 34.57% is No. 1 among the 11 S&P 500 sectors. Science and technology funds' 29.52% gain in 2024 ranks second. Trump is expected to extend his tax cuts from 2017, which expire next year. That means more money in workers' pockets, which lifted consumer services funds to an 8.40% gain in November.
"Financials stand out as one of the sectors that should be a clear beneficiary of Trump's policies," said Lefkowitz. Less regulations, he says, will likely boost the amount of capital returned to shareholders by financial companies. He also expects "a pickup across many lines of business" in the financial sector. Merger activity could pick up, too. "We just haven't really seen that become unleashed yet," said Lefkowitz.
How Stock Market ETFs Did
Investing in equity ETFs in November didn't disappoint, either. All of this year's top 20 performing U.S. diversified ETFs sported gains. The biggest gainer was Pacer US Large Cap Cash Cows Growth Leaders ETF, which invests in durable companies in the big-cap Russell 1000. The ETF soared 13.2% to extend its annual gain to 41.39%, according to Morningstar Direct. The runner-up in the top 20 performance race in November was Invesco S&P MidCap Momentum ETF, which gained 11.58%, making it the No. 1 performing domestic stock ETF this year with a 51.03% gain.
In a sign that investors are reacting to Trump's support of cryptocurrencies, Global X Blockchain ETF, which invests in the technology that powers cryptos, skyrocketed 39.22%, making it the third-best sector ETF this year. Bitcoin soared 38.5% in November to close at $96,841, according to Deutsche Bank.
Releasing Speculation
And in another sign of animal spirits unleashed by Trump's win and more growth-oriented policies, the Cathie Wood-led ARK funds, which invest in disruptive and innovative companies, shined the brightest. ARK Fintech Innovation ETF rallied 27.21%, ARK Innovation ETF jumped 26.35%, and ARK Space Exploration and Innovation ETF gained 24.54%.
Financial ETFs also got a lift from Trump's win.
Expect "significant shifts" in the U.S. stock market in 2025, says Richard Mathieson, portfolio manager for BlackRock Systematic Active Equity Investment Group. Trump's policies are likely to accelerate the departure from the low-growth, low-inflation and low-interest rate environment markets have in the post-Covid period. Higher deficits and higher government spending will spark the shift.
Still, Mathieson expects equity leadership to broaden out beyond the Magnificent Seven tech stocks that have driven markets higher in recent years. With rates expected to move higher, BlackRock prefers value over growth. And is overweighting economically sensitive sectors, such as industrials and consumer discretionary, says Mathieson. The portfolio he manages, he says, is underweight rate-sensitive sectors, such as utilities and real estate.
"The 2025 market presents unique opportunities and risks," said Mathieson.
Getting A Fixed Income Fix
Diversifying with bonds paid off, too, in November. The 10-year Treasury ticked back down to 4.18% from 4.29% in October. iShares Core U.S. Aggregate Bond, a fixed-income portfolio that invests in a diversified basket of investment-grade bonds, rose 1.13% in November and is up 3.03% on the year. Corporate bonds were up, too. SPDR Portfolio Long Term Corporate Bond ETF gained 2.57% and Vanguard Long-Term Corporate Bond ETF rose 2.56%.
Despite the bond market giving back some of its gains from earlier this year due to a stronger-than-expected economy and job market, bonds still sport plump yields and remain attractive, says Mary Ellen Stanek, co-chief investment officer at Baird Asset Management, president of Baird Funds and comanager of Baird Aggregate Bond Fund.
"The headline is that bonds offer good value," said Stanek. Now is the time to take advantage of yields at higher starting points and lock the higher income in for longer. She says intermediate-term bonds with durations of around six years are the way to go. And for investors in high tax brackets, there is a "compelling" case for investing in municipal bonds, which are exempt from federal taxes and often tax-free at the state and local level, too. In November, one of the top-performing bond ETFs was VanEck CEF Municipal Income ETF, which gained 2.46%.
What's Next For The Stock Market With Fed
Bond investors should not focus on whether the Fed will cut rates in December or January, but rather focus on the big picture and endgame, adds Warren Pierson, Baird's other co-chief investment officer.
The fact is the Fed is in the process of pushing rates down to a neutral rate. "I'm not going to get into the play-by-play as to how fast and how much they'll cut, but the Fed's key short-term rate is probably going to end up someplace close to 3%," said Pierson.
