The S&P 500 hit a record high yesterday (6 November) following the outcome of the US election. The index finished up 2.53% to close at 5,929 points. Even though the index did well, some individual US performers did even better. Based on the type of stocks that rallied, I feel I can learn something about what could happen from here.
Takeover potential
The best performing stock yesterday was Discover Financial Services. The share price jumped by 20%. This also relates to Capital One, which surged by 15%.
There’s currently a $35bn deal on the line, with Capital One looking to take over Discover. This would create the biggest credit-card issuer in the country by loan volume. However, it’s still pending approval in government. With a Trump victory yesterday, there’s a lot more optimism that he might give the green light shortly to get this done. Trump is seen as pro-business and has made it a key policy pledge to get the economy going again.
I think this is a really interesting example of how stocks can move based on something like an election result. It highlights that politics does influence the stock market, including specific situations like this one.
Of course, nothing concrete has been done, so the jump yesterday in these two stocks is purely based on speculation. But given that Discover was the largest gainer shows the importance that investors put on what just happened.
A retail investing favourite is back
One of the other top performers yesterday was Tesla (NASDAQ:TSLA). I’m seriously thinking about buying this stock and really should have bought it earlier this summer when the stock dipped!
Over the past year Tesla shares are up 30%, with 15% of this move coming yesterday. One of the key factors here was the fact that Elon Musk has become a vocal supporter of Trump on his campaign trail. So I feel like some speculative traders were using Tesla shares as a way of expressing a view that Trump would win. Equally, if he had lost I think the stock would have fallen in value.
I don’t invest in stocks for such kind of speculation. But looking forward, I think Tesla could do well. With Musk being close to the President, I think he could help to influence policy regarding the push towards electric vehicles. He could also lobby for more government assistance, favourable terms on subsidies, and other factors that should ultimately benefit Tesla.
Tesla also stands to gain from some of Trump’s policies, including lower taxation. With some manufacturing plants in the US, it may find more of a competitive advantage versus peers abroad, especially if the other companies get hit with tariffs.
As a risk, Tesla stock has a price-to-earnings ratio of 128. This is very high and could indicate that the stock is overvalued.
