A stretch that goes down as the best week for U.S. stocks in two years has been anything but easy money for the traders who had to navigate it.

Three distinct narratives have driven trading, combining to lift the S&P 500 Index more than any time since 2014 and give the Dow Jones Industrial Average its best week in five years. Stocks rallied on Monday and Tuesday on speculation Hillary Clinton would win the presidency, then posted almost equally big gains Wednesday and Thursday as investors warmed to Donald Trump’s fiscal stimulus policies.

The week ended on a down note for the S&P 500, as gains in banks and drug stocks were pared. In the middle was an hour-long election night plunge that would’ve lopped $1 trillion from the S&P 500 had it come during regular trading hours.

“The last two to three days have had everything to do with re-pricing in a complete regime change,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. “You have markets that now have to contend with the idea of a much larger fiscal push then they were expecting just a few days ago. You’re seeing a big rally in economically sensitive assets.”

The S&P 500 rose 3.8 percent in the five days, while the Dow rallied 959.38 points for its best week since 2011. Small caps in the Russell 2000 Index surged 10 percent. The Nasdaq 100 Index added 1.5 percent.

Along the way, the Dow also closed at record for the first time in three months as investors snapped up what they calculated would be beneficiaries of a Trump presidency. The surge in stocks following a presidential election echoed 1996 and 1972, when the blue-chip index made fresh highs after victories by Bill Clinton and Richard Nixon.

Exchange-traded funds tracking U.S. equities took in $16.3 billion of fresh cash on Wednesday and Thursday, data compiled by Bloomberg show. It included $8 billion of inflows into a security tracking the S&P 500 that was the biggest in 14 months. It was the first week in history that had two days with more than 12 billion shares traded.

David Fuller's view

The S&P 500 Index had peaked in August and then drifted sideways to lower during the countdown to the Presidential Election on Tuesday.  We can assume that there had been some profit taking and also hedge shorting in anticipation of volatility.  Similarly, the sharp rally following the result will have included the reinvestment of cash and short covering.  Consequently, we are likely to see some consolidation of gains commencing next week. 

Looking further ahead, President Donald Trump and the Republican controlled houses of Congress have a rare and unexpected opportunity to realign the US economy for an increase in GDP growth. 

Entrepreneur Trump is unlikely to sit around and proceed cautiously.  He has a few short years to enhance his reputation by supercharging the US economy.  Most Republicans will back him without hesitation, even though many thought Trump was ruining the party and their careers before all were surprised by the result.  Since Wednesday it has been smiles all around in the Republication Party because everyone in the club loves a winner. 

Nevertheless, there are plenty of reasons for doubt.  Many feared a President Trump would have the mannerisms of a dictator and behave like Mussolini.  Others suspected he would be a contemporary Nero, fiddling while the USA burned. 

Trump’s behaviour will determine whether he triumphs or fails over the next four years.  One does not have to like Trump but as President Obama said after their first meeting on Thursday: “If Donald Trump succeeds, America succeeds.”  I certainly hope he succeeds and give him the benefit of the doubt. 

(See also, my comments following the lead item on Thursday.)