On Tuesday, the exuberant rally in U.S. stocks hit a pause as investors began to question whether the market’s enthusiasm had pushed valuations too far, especially in light of President-elect Donald Trump’s upcoming Cabinet announcements and their potential policy impacts.
The Dow Jones Industrial Average (^DJI) fell by 382.15 points, or 0.86%, settling at 43,910.98, marking its worst performance since October 31. The S&P 500 (^GSPC) wasn’t far behind, dropping 17.36 points, or 0.29%, to close at 5,983.99, breaking its five-day winning streak. The tech-centric Nasdaq Composite (^IXIC) also saw a slight decline of 0.09%, ending the day at 19,281.40, also snapping a five-day streak of gains.
The sectors most closely associated with the “Trump trade” experienced significant downturns. Small-cap companies, often seen as prime beneficiaries of Trump’s policies, saw their index, the Russell 2000 (RUT), drop by 43.13 points, or 1.77%. Tesla Inc. (TSLA), which had enjoyed a post-election surge of more than 30%, saw its shares decline by more than 21 points, or 6.15%. Meanwhile, Trump Media & Technology Group (DJT), closely linked to the incoming president, fell almost 9%, accumulating a 10% loss since Trump’s electoral win.
This market correction coincided with an uptick in Treasury yields, with the 10-year Treasury yield (^TNX) increasing by about 12 basis points to approximately 4.429%. This movement in yields often signals investors’ expectations regarding inflation and economic policy, particularly in light of Trump’s proposed fiscal policies.
Wall Street analysts, observing the market’s trajectory post-election, have begun to caution that the recent surge might be due for a correction. Bank of America’s findings show that investor exposure to U.S. stocks is at an 11-year high, setting the stage for potential profit-taking, as noted by Citi strategists.
In contrast to the equities market, Bitcoin (BTC) continued its phenomenal ascent, nearing the $90,000 mark, which could be indicative of investors seeking alternative assets amid uncertainties in traditional markets.
Attention now shifts to the upcoming Consumer Price Index (CPI) report for October, due on Wednesday. Investors are keenly interested in whether this report will signal that inflation is cooling, aligning with the Federal Reserve’s targets, which could influence future monetary policy decisions and, consequently, market directions.
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