(Bloomberg) — A rally that pushed stocks to a series of record highs ran out of steam, with Treasury yields soaring and the dollar hitting a two-year high ahead of key inflation data.
Most read from Bloomberg
Stocks fell after the S&P 500’s biggest five-day run in a year. After the significant post-election gains, small caps and banks lost ground. Megacaps were mixed, with Nvidia Corp. higher and Tesla Inc. lower. Bitcoin fell after a blistering rise that approached $90,000. The dollar reached its highest level since November 2022, while the euro fell to a one-year low. Treasury yields rose faster than data expected to indicate a rise in consumer prices, which could further erode confidence in Federal Reserve rate cuts.
“High CPI and/or strong retail spending could push two-year rates above 4.45% (from around 4.3%) if a December rate cut starts to look imprudent,” said Will Compernolle of FHN Financial.
According to strategists at Citigroup Inc. led by Chris Montagu, the post-election rally in US stocks could stall as investors start taking profits. Investor exposure to U.S. stocks rose to the highest level since 2013 after the presidential election amid optimism about stronger economic growth, a Bank of America Corp. survey showed.
“We are wary of potential profit-taking, consolidation or even correction for US stocks heading into the first quarter of the new year,” said Dan Wantrobski of Janney Montgomery Scott. “Upside momentum remains strong and investor sentiment is favorable, but shares are once again being overbought/extended across multiple time frames.”
The S&P 500 fell 0.3%. The Nasdaq 100 fell 0.3%. The Dow Jones Industrial Average fell 0.6%. The Russell 2000 fell 1.5%.
The ten-year government bond yield rose by 13 basis points to 4.43%. The Bloomberg Dollar Spot Index rose 0.6%.
Bank of America customers poured a net $2.7 billion into U.S. stocks last week as the presidential race was decided — posting net inflows for the first time in five weeks. Institutional and hedge fund clients led the net buying, while retail investors were net sellers posting the biggest outflows since mid-2021, quantitative strategists led by Jill Carey Hall said in a research note on Tuesday.
In the wake of the big post-election rally, traders are gearing up for the main consumer price index. US inflation likely moved sideways at best in October, highlighting the uneven path of easing domestic price pressures towards the Federal Reserve’s target.