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The S&P 500 (SPY) has erased its post-election gains from President Donald Trump’s second term, reflecting investor unease over sticky inflation, rising interest rates, and economic uncertainty. On Monday, the index dipped below its November 2024 pre-election close of 5,782, retreating from a 5.3% rally that peaked in December. This marks a stark shift from the optimism that buoyed markets immediately after Trump’s victory, as traders now contend with concerns over policy execution, tariffs, and elevated stock valuations.

The bond market also signaled unease, with 20-year Treasury yields surpassing 5% and the 10-year yield climbing to 4.77%. Elevated rates have made equities less attractive, pressuring a market that had already posted extraordinary gains over the last two years. Volatility spiked, with the VIX surpassing 20, signaling heightened trader anxiety. Analysts are increasingly skeptical of the Federal Reserve’s willingness to accelerate rate cuts, given persistent inflation and economic resilience.

Market Overview:

• S&P 500 dipped below its November 2024 pre-election close of 5,782.


• 20-year Treasury yields (TLT) climbed above 5%, with 10-year yields reaching 4.77%.


• The VIX exceeded 20, reflecting rising market volatility and trader concerns.

Key Points:

• Post-election market optimism fades amid inflation and rate hike concerns.


• Tariff and fiscal policy uncertainty complicates economic outlook.


• Wall Street weighs risks of slower rate cuts against potential market-friendly policies.

Looking Ahead:

• Investors await clarity on Trump administration’s tariff and fiscal strategies.


• Upcoming economic data may shape Fed’s approach to interest rate adjustments.


• Market sentiment hinges on balancing deregulation hopes with inflation risks.

Bull Case:

• The S&P 500's retreat below its November 2024 pre-election close could present buying opportunities for long-term investors as valuations normalize.


• Trump’s focus on market performance may lead to tempered tariff and fiscal policies, providing a potential boost to investor sentiment and market stability.


• Deregulation and tax cuts proposed by the administration could serve as growth catalysts, supporting corporate earnings and economic expansion in the medium term.


• Persistent economic resilience, despite inflation concerns, indicates underlying strength that could support equity markets once policy clarity emerges.


• The Federal Reserve’s cautious approach to rate cuts ensures inflation control, maintaining long-term economic stability and investor confidence.

Bear Case:

• The S&P 500’s decline reflects waning post-election optimism, with inflation and rising interest rates weighing heavily on equity valuations.


• Elevated Treasury yields make equities less attractive relative to fixed-income investments, pressuring stock prices further.


• Uncertainty surrounding Trump’s tariff and fiscal policies could exacerbate market volatility, deterring institutional and retail investors alike.


• The Federal Reserve’s reluctance to accelerate rate cuts may prolong tighter financial conditions, limiting economic growth and corporate profitability.


• Higher tariffs and restrictive immigration policies risk stoking inflation further, complicating the Fed’s monetary policy trajectory and increasing recession risks.

Economists note that Trump’s proposed tariffs and immigration policies could further stoke inflation, challenging the Federal Reserve’s monetary policy trajectory. While deregulation and tax cuts are seen as potential growth catalysts, concerns about protracted policy uncertainty loom large. Fed Chair Jerome Powell has indicated hesitancy to hasten rate cuts, citing inflation risks tied to higher tariffs. Wall Street remains cautiously optimistic, betting that Trump’s focus on market performance could temper his policy stance if stocks falter.

Despite the turbulent start to 2025, some analysts argue that Trump’s perceived reliance on market performance as a presidential metric could temper aggressive policy moves. Traders are betting that tariffs and other contentious policies may be dialed back if they trigger adverse market reactions, providing some hope amid the current volatility.
This article was originally published on Quiver News, read the full story.

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