Market Whiplash: Trump’s Second Term Sparks Uncertainty
As the dust settles on Donald Trump’s re-election, Wall Street is grappling with a harsh reality check. The S&P 500 Index, once soaring on election day euphoria, has plummeted to levels not seen since before Trump’s first term. Investors are dumping stocks, interest rates are climbing, and fears of stubborn inflation are growing.
The Perfect Storm of Uncertainty
Friday’s surprisingly strong jobs data only added fuel to the fire, intensifying worries about the Federal Reserve’s rate-cut plans. The equities benchmark dropped to a low of 5,773.31 before erasing losses to end the day modestly higher at 5,836.22. But the damage was already done – the S&P 500 has fallen over 4% from its all-time high.
A Shift in Sentiment
Traders are now sizing up the potential implications of Trump’s proposed policies, including sweeping tariffs on imported goods and mass deportations of low-wage undocumented workers. The fear is palpable in the bond market, where yields on 20-year and 30-year Treasuries have surged above 5%. Stock market volatility is also on the rise, with the Cboe Volatility Index hovering around 20.
A Different Market Landscape
This time around, Trump enters the White House with a very different stock market than he did in 2017. Valuations are stretched, interest rates are higher, and the Fed sounds reluctant to aggressively lower rates anytime soon. The initial exuberance around Trump’s agenda has given way to concerns about the drama surrounding his administration and the potential impact on pro-growth initiatives.
Higher for Longer
Economists and strategists see Trump’s proposals for tariffs and immigration as potentially inflationary, which could keep interest rates higher for longer than Wall Street had anticipated. Fed Chair Jerome Powell has signaled that policymakers aren’t seeing signals to hurry to lower rates, and monetary policy uncertainty is likely to remain high for several months.
A Glimmer of Hope
Despite the uncertainty, Wall Street still has reasons to be optimistic about a second Trump term. The president tends to see the stock market as his report card, and traders hope that he won’t do anything to harm a market rally. The idea is that if there is an adverse market reaction, Trump’s fondness for the market will cause him to reverse course. But for now, investors are left to navigate the treacherous waters of uncertainty.
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