(Bloomberg) — It’s the round-trip ticket no one on Wall Street wanted.
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The S&P 500 Index on Monday briefly fell below where it ended on November 5, just before Donald Trump was elected president, and closed only slightly above that level on Monday. Investors are dumping stocks and interest rates are rising as fears grow that inflation remains stubborn and that the Federal Reserve will have to scale back its plans for rate cuts this year to combat it. Friday’s surprisingly strong jobs data only reinforced these concerns.
The stock benchmark 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 votes were counted on Election Day, the S&P 500 closed at 5,782.76. It then rose 2.5% on November 6 after Trump was declared the winner, posting the best post-election session ever. And the price continued to rise the following month, eventually rising 5.3% from November 5 to its peak on December 6. It’s down more than 4% from that all-time high.
There are several reasons for the decline: The economic outlook is deteriorating; investors are increasingly concerned about high stock valuations; and growing concerns about the Fed’s rate-cutting path. Traders have also mapped out 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 already manifesting in the bond market, where yields on 20-year Treasuries are above 5% and the 30-year yield soared above the mark on Friday before falling just below it. Now the policy-sensitive 10-year yield is moving in that direction, reaching the highest level since the end of 2023.
Stock market volatility is also increasing, with the Cboe Volatility Index, or VIX, hovering around 20, a level that typically signals fear among traders.
“This is an example of high expectations coming true,” 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 realization that tariffs will be a cornerstone policy of the new government, something that investors generally don’t like as tariffs tend to weigh on growth. “The honeymoon may be over,” O’Rourke added.
Different market
One thing is clear: Trump enters the White House with a very different stock market than in 2017. To start with, valuations were hardly exaggerated then, but are now at a precarious level. The S&P 500 is up more than 50% since the end of 2022, after posting gains of more than 20% for two consecutive years. It has set more than 50 records in 2024 alone. Compare that to Trump’s first term, when the S&P 500 gained 9.5% in 2016 and was up just 8.5% over the past two years.