Dow closes up 250 points; financials surge after Trump election upset

U.S. stocks surged more than 1 percent Wednesday with financials and health care leading after Republican Donald Trump won the presidential election, defying market expectations for a Hillary Clinton win.

The day's rally took the major averages within 2 percent of their all-time intraday highs, and marked a stunning recovery from a sharp plunge in stock index futures overnight. Trade volume Wednesday was the highest since the surprise U.K. vote to leave the European Union in June.

"Overnight was all about uncertainty. Today we know" the result," said JJ Kinahan, chief strategist at TD Ameritrade.

The Dow briefly rose more than 300 points in the afternoon, on track to close at a record high and about 25 points below its all-time intraday high. Caterpillar and Goldman Sachs contributed the most to gains.

The S&P 500 traded 1 percent higher after falling initially, with financials advancing 4 percent to lead advancers. "Within financial services, there is a guarded view that there may be less regulation [under Trump] than under a Clinton presidency," said John Stadtler, head of U.S. financial services at PwC.

The Nasdaq composite rose about 0.9 percent.

"We had a trial run in June with the Brexit vote," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "Like with Brexit, investors and traders are realizing that this is a process, not an event." "What you're seeing right now is a pretty predicable repositioning of portfolios."

Investors began adding exposure to health care and defense stocks, both of which saw significant pressure heading into the election, since Clinton was the favorite to win.

Stock futures had pared the lion's share of their losses before the open. Dow futures traded about 200 points lower after briefly shedding more than 800 points overnight. S&P and Nasdaq futures also slashed losses, trading around 32 and 96 points lower, respectively.

"The market's initial response to the probability of a Trump win was, predictably enough, one of shock and fear as the prices of traditionally risky assets tumbled and perceived safe havens rose. However the increased prospect of tax cuts and a generally pro-growth set of policies from him, aided and abetted by the Republican clean sweep of congress, has seen some of this initial reaction begin to reverse," James Athey, fixed income fund manager at Aberdeen Asset Management, said in an email.

Stocks were on track to post a much better post-election day than in 2012, when the Dow and S&P both dropped 2.4 percent, while the Nasdaq slipped 1.4 percent.

Trump shocked the world by beating Clinton in the race for the White House. Trump's success was only part of a larger, crushing victory for the Republican Party, which retained the House and appeared poised to maintain Senate control.

Financial markets had originally priced in a victory for the former secretary of State, along with the GOP retaining control of the House while Democrats obtained a slight majority in the Senate.

The U.S. electoral outcome led traders and money managers to initially take a more risk-averse approach, sending traditional safe-havens like gold through the roof. Gold futures for December delivery traded as high as $1,338.30 per ounce, before erasing gains to settle at $1,273.50.

U.S. Treasurys gave back earlier gains, with the benchmark 10-year yield breaking above 2 percent. Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management, said the rise in long-dated U.S. yields gave bank stocks a boost. The SPDR S&P Bank ETF (KBE) and the Regional Bank ETF (KRE) rose 5.2 percent and 5.4 percent, respectively.

"Over the next few months, you're going to get more volatility because we'll learn a lot more" about Trump's plans, Schutte said.

Quincy Krosby, market strategist at Prudential Financial, said traders and money managers approached the election factoring in a possible upset by Trump. "It was in everyone's mind that there could've been an upset," she said. "What I'd like to see is gold losing some of the gains along with the 10-year [note]. It's very important to see confirmation in other parts of the market."

The currency market also saw sharp moves overnight, with the Mexican peso briefly falling more than 10 percent against the dollar, hitting a record low. The Mexican peso was largely seen as a proxy for the U.S. presidential election. Investors also turned to the Japanese yen, a perceived safe-haven trade in the currency market, sending it more than 1 percent higher versus the greenback before easing.

Trump's victory may have wide implications on multiple fronts, including trade, taxes and foreign policy, among others. His win also puts into question the likelihood of a Federal Reserve rate hike. Market expectations for a rate hike in December briefly fell to around 50 percent, before holding around 76 percent, according to the CME Group's FedWatch tool.

Ninh Chung, head of investment strategy and portfolio management at Silicon Valley Bank, said that the economic fundamentals haven't changed. "If you look at the employment numbers, the [October] number was roughly in line and we got upward revisions on previous months," he said.

Overseas, European markets erased losses by late-morning ET, with the Stoxx 600 index trading about 1.46 percent higher. In Asia, the Nikkei 225 shed more than 5 percent, however.

The Dow Jones industrial average rose 204 points, or 1.13 percent, to 18,543, with Pfizer leading advancers and Coca-Cola the top decliner.

The S&P 500 gained 20 points, or 0.95 percent, to 2,159, with financials leading six sectors higher and utilities lagging.

The Nasdaq composite rose 37 points, or 0.73 percent, to 5,232.

About four stocks advanced for every three decliners at the New York Stock Exchange, with an exchange volume of 793 million and a composite volume of 3.898 billion in afternoon trade.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded 16.9 percent lower, near 15.6.

U.S. crude prices rose 44 cents, or 0.98 percent, to $45.44 per barrel.