Major stock indexes rose alongside government-bond yields with the return of the "Trump trade" following Saturday's attempted assassination of Donald Trump.
Investors had plenty to process Monday, including the likelihood of a second Trump presidency, earnings from Wall Street giants Goldman Sachs and BlackRock, and public comments from Federal Reserve Chair Jerome Powell. Stock indexes pared some of their gains after Powell signaled that rate cuts are coming but declined to say when.
The Dow Jones Industrial Average added 0.5% to close at a record 40211.72, its first since May. The S&P 500 was up 0.3%, while the Nasdaq Composite was 0.4% higher.
Bets on a Trump victory in the November presidential election have increased, according to PredictIt data. That has put the "Trump trade" back in focus for investors. Investors expect that a second Trump administration would feature tariffs and tax cuts that could stoke inflation again.
Longer-dated bond yields have risen in response, with the benchmark 10-year Treasury yield climbing to 4.231% from 4.187% Friday. Meanwhile, shares of Trump Media & Technology, the parent company of Truth Social, jumped 31%, and bitcoin surged above $63,000. Trump has cast himself as a pro-cryptocurrency candidate and is due to speak at a crypto conference this month.
"Today, we are seeing a glimpse of how market players want to express a Trump presidency," said Chris Weston, head of research at Pepperstone. "The extent of any potential impact does rely on whether the Republicans also take the House."
In a potential "red wave" scenario where Republicans controlled the presidency and Congress, Weston sees a positive environment for stocks along with higher long-term bond yields. He also sees the potential for increased defense spending and tax cuts that increase the national deficit.
Analysts at UBS now see a 45% probability of a Republican sweep, the highest odds of any of the potential outcomes they track. In a note Monday, they cautioned against short-term trading in reaction to political events but said avoiding consumer-discretionary stocks that could be hit by tariffs might be a sound defensive play.
Firearms stocks surged Monday following the shooting at the presidential rally over the weekend. Smith & Wesson, the only large listed firearms maker, rose 11%, while bullet maker Ammo gained 15%.
Tesla shares extended a recent tear. Elon Musk's electric-vehicle maker added 1.8%, and the shares are now up more than 40% over the past month. Musk has aligned himself with Trump recently, offering an endorsement of the former president after the shooting Saturday.
Second-quarter earnings season has now kicked off in earnest, with Goldman Sachs and BlackRock reporting Monday. Goldman's profit soared from a year earlier with help from strong results in its Wall Street businesses. Its shares rose 2.6%.
BlackRock shares declined modestly after it reported faster growth and a record $10.6 trillion in assets under management.
Investors will have plenty to chew on the rest of the week with earnings from Morgan Stanley, Netflix and United Airlines, along with data on U.S. retail sales and housing starts and a rate decision from the European Central Bank.