Trump's Victory, Fed Moves, and the Market Sell-Off: What's Next?

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

It seems like the fun never stops in the S&P 500. On November 5, 2024, Trump won both the Electoral College and the popular vote, becoming only the second Republican to win the popular vote since 1988 but the stock market has been going down ever since. The main question is: why? After a full year of rallying, the S&P has fallen 5%, the Dow has dropped 7%, and the Nasdaq has fallen 7%. In the grand scheme of the last two years, it’s not that much, but it’s the timing of the sell-off that threw a monkey wrench into what most people were looking for, an end-of-the-year push. Santa Claus didn’t just fail to show up, he got shoved off the roof.

I hate to keep going over and over the same things but I was talking to Jeff Hirsch from the Stock Trader’s Almanac, and he agreed with my assessment: the Fed didn’t need to cut by 0.50% and then do a 2nd cut in December. Based on the data, the Fed never should have cut. That decision marked one of the best "sell-the-news" events in a long time. Inflation was already rising, yields were climbing, and Trump was threatening just about everyone with increased tariffs, all while the geopolitical situation grew increasingly volatile. Yesterday, the Nasdaq fell for the fifth straight session, while YM closed up almost 0.50% higher, and the S&P closed essentially flat, just a tad higher.

Heading into today’s CPI number, the yield on the 10-year note settled at 4.787%, down from Monday’s 4.802%, its highest closing level since October 2023. I think this moment is ground zero, and today’s CPI number could be pivotal. Additionally, Citigroup, Goldman Sachs, JPMorgan, and Wells Fargo are all set to report their quarterly results, which could further impact market sentiment.

-DR