Markets are focused on the Trump trade — and that means big spending and higher inflation.
After steep losses that left stock futures limit down overnight, the Dow and S&P 500 were sharply higher on unusually high volume, after minor opening losses. The Dow jumped more than 250 points and was racing toward a new all-time high, a radical turnaround from its 800-point loss in the futures market. The Nasdaq was higher and small caps gained, with the Russell 2000 up 2.5 percent in afternoon trading.
Treasury yields shot higher, and stocks that would benefit from infrastructure programs surged. The Dow was helped by a 7 percent jump in Caterpillar, and gains in financials — Goldman Sachs and JPMorgan Chase.
Stocks focused on the positives of Donald Trump's policies but ignored its fears that he could ignite a global trade war. The dollar jumped, and the Mexican peso continued under pressure, losing another 8 percent to record lows.
"For the first time, we have the possibility of fiscal policy being implemented in such a way that it has the possibility of changing the deflation we've had for quite a while," said Krishna Memani, CIO of OppenheimerFunds. He said near-term impacts on the economy from any potential market turbulence will likely be mitigated by a more accommodative Fed.
Trump has also proposed a lower corporate tax rate and a one-time tax holiday that would mean U.S. companies could bring back the billions they have stashed overseas.