(Bloomberg) — It’s the round-trip ticket that no one on Wall Street wanted.
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The S&P 500 on Monday briefly fell below where it finished on November 5, just before Donald Trump was elected president, and closed just above that level on Monday. Investors are dumping stocks and interest rates are rising as fears grow that inflation remains stubborn and the Fed will have to scale back its plans to cut interest rates this year to combat it. Surprisingly strong jobs data on Friday heightened those concerns.
The stock index fell to a low of 5,773.31 earlier in the session, but erased losses to end the day modestly higher at 5,836.22. Before the votes were counted on Election Day, the Standard & Poor’s 500 Index closed at 5,782.76 points. It then jumped 2.5% on November 6 after Trump’s victory was announced, marking its best session ever after Election Day. It continued to rise for the next month, eventually rising 5.3% from November 5 to its peak on December 6. It is more than 4% below its all-time high.
There are several reasons for this decline: deteriorating economic outlook; Investors are increasingly concerned about high stock valuations; Concern has grown about the Fed’s interest rate cutting path. Traders are also weighing the potential ramifications of Trump’s proposed policies, which include sweeping tariffs on imported goods and the mass deportation of low-wage undocumented workers.
The fear is already showing in the bond market, where the yield on 20-year Treasuries exceeds 5%, and the yield on 30-year Treasuries rose above the important level on Friday before falling just below that. Now the policy-sensitive 10-year bond yield is heading in that direction, hitting the highest level since late 2023.
Stock market volatility is also rising with the Cboe Volatility Index, or VIX, hovering around 20, a level that usually indicates anxiety among traders.
“This is a case of high expectations colliding with reality,” said Michael O’Rourke, chief market strategist at JonesTrading, noting that turning campaign promises into policy is a difficult process.
There is also a growing understanding that tariffs will be a cornerstone policy for the new government, something investors typically do not like, given that tariffs tend to weigh on growth. “The honeymoon may be over,” O’Rourke added.
Different market
One thing that is clear is that Trump enters the White House with a very different stock market than it was in 2017. To begin with, valuations were not nearly as stretched then but are at risky levels now. The S&P 500 is up more than 50% since the end of 2022 after posting gains of more than 20% for two straight years. In 2024 alone, it achieved more than 50 records. Compare that to Trump’s first term, when the S&P 500 gained 9.5% in 2016, then rose just 8.5% over the previous two years.
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