The Dow Jones is expected to rise by more than 1,200 points if Trump is re-elected

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CNN
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Markets are set to rise sharply on Wednesday morning following a shift toward Republicans, including a decisive and significant re-election of former President Donald Trump in Tuesday's election.

Dow futures rose 1,200 points, or 2.9%. The broader S&P 500 rose 2.3% and the tech-heavy Nasdaq rose 1.8%.

After President Joe Biden's victory in 2020, Trump flipped several swing states and Republicans also took control of the Senate. Several key House races are still undecided. A so-called red wave could usher in an era of deregulation and other business-friendly laws and policies that investors believe could benefit the stock market.

However, Trump has advocated for measures such as tax cuts and increased government spending that could significantly increase America's budget deficit. This devalued U.S. Treasury bonds, causing yields to rise, which move in the opposite direction of bond prices.

The 10-year bond yield rose above 4.4%, undermining the Federal Reserve's efforts to cut interest rates to stimulate the economy. The Fed has raised interest rates in recent years to counteract a devastating rise in inflation. However, it began cutting rates in September and is widely expected to cut again on Thursday after the conclusion of its two-day policy meeting.

Although the Federal Reserve interest rate can influence Treasury yields, consumer credit, including mortgage rates, auto loans and credit cards, are more closely tied to Treasury yields. So Trump's victory appears to be keeping those interest rates a little higher, at least for now.

Other so-called Trump trades, including shares of his social media stock Trump Media and Technology Group, rose sharply on Wednesday morning. TMTG shares, trading under the symbol “DJT,” rose 30%.

The US dollar also rose 1.7% against the euro and the British pound to its highest level since July. The dollar could benefit from Trump's radical plan to significantly increase tariffs, potentially leading to more domestic demand for U.S. goods – although most economists reject the plan and many suspect it will not change consumer behavior.

However, Trump's tariff plan could spur inflation, which could also undermine the Fed's rate-cutting efforts.

Bitcoin also shot to a new high of almost $74,000 on Wednesday morning. Trump has become interested in cryptocurrencies in recent months after largely rejecting them during his first term. Cryptocurrencies have surged as Trump's re-election chances appeared to be increasing.