Market Volatility Intensifies as Investors Reassess Trump-Era Expectations
The post-election rally has lost steam, with Friday’s sell-off extending into Monday as investors confront the reality of a potentially less market-friendly environment. The Federal Reserve’s key rate is now seen as unlikely to drop below 4% this year, sending bitcoin tumbling near a two-month low.
A Shift in Sentiment
“Investors initially celebrated the national election results, anticipating a growth- and market-friendly administration,” notes Doug Peta, chief U.S. investment strategist at BCA Research. However, he cautions that the current backdrop is far less forgiving than it was eight years ago, with five years of gaping budget deficits and a two-year stretch of seventies-style inflation.
Jobs Report: Stability, Not Improvement
Friday’s reported 256,000 payroll gain exceeded forecasts, but the average monthly payroll gain over the past three months remains respectable, but not especially strong, at 170,000 overall, including 138,000 in the private sector. This points to stability, rather than improvement, in the job market.
Inflation Concerns Mount
The University of Michigan consumer sentiment survey showed a jump in five-year inflation expectations to 3.3%, the highest since 2008. If sustained, this could raise concerns at the Fed that inflation expectations are becoming unanchored. Additionally, the Institute for Supply Management’s gauge of service-sector prices surged 6.2 points to 64.4, the highest since February 2023.
Markets on Edge
As of Monday morning, markets are not expecting the next rate cut before the June 18 Fed meeting, with the odds of a rate cut at the Jan. 29 meeting seen as almost zero. The price of bitcoin fell to $91,540, down 5% from its 24-hour high, while MicroStrategy, which was added to the S&P 500 last month, tumbled 5% in Monday trade. The S&P 500 fell 0.7% Monday morning, briefly undercutting the S&P 500 Election Day close of 5,783.
Nvidia Takes a Hit
Nvidia stock fell nearly 4% on new AI chip export curbs and reports of cancelled Blackwell chip orders. The Trump rally, which peaked on Dec. 6, has lost steam, with markets now focusing on the potential inflation impact of tariffs and the deficit impact of tax cuts.
Biotech in the Spotlight
Next week, the 43rd annual J.P. Morgan Healthcare Conference in San Francisco will put biotech stocks in the spotlight. Meanwhile, investors are advised to stay informed and adapt to the shifting market landscape.
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