US stocks recovered some losses from late last week, and were up again on Monday. Crypto assets — mostly insulated from the selloff — were largely maintaining their post-election rally.
Start by examining what caused the recent drop in equity prices. It was, in my opinion, a little bit of a “perfect storm”.
As expected, the GOP victory sent shares higher. When Trump won in 2016, the S&P 500 gained about 6% between election night and Inauguration Day, a slightly bigger bump than the index saw when George W. Bush won in 2000 (+4%).
It appears that the market has once more bet on Trump’s plan (lower corporation taxes, fewer regulation, etc.). Business is good. The market certainly felt that way up until Thursday.
Trump’s picks for his cabinet have thus far been controversial. The process, in just two weeks, has been chaotic and dramatic — likely reminding investors that while a red sweep is typically advantageous for shareholders, a Trump presidency is still, well, a Trump presidency.
This past week has not been very reassuring if you were hoping to have a smooth political journey over the next 4 years. Combine that with growing concerns about the economic impact of Trump’s proposed tariffs and massive deportations, and it is no surprise markets have pulled back.
Perfect storm number two is upon us: inflation continues to climb, while the job markets is showing remarkable resilience. Initial claims of unemployment for the last week, ending November 9, were at 217,000 as opposed to 224,000. The Core CPI in October was 3.3% above the year-ago level. This is on par with expectations but far from the Fed’s 2% goal.
It is this combination that makes the Fed’s task more challenging. Last week, Jerome Powell made it clear that the Fed is not in a hurry to reduce interest rates. It will instead continue to assess the data. The data for this week will tell us a lot (but we’ll get to that later).
Stocks are looking good today, despite the doom and gloom. The S&P 500 was up 0.4% while the Nasdaq Composite had gained 0.7% as of 2 pm ET. Bitcoin, which appeared to be hitting new records almost daily last week was steady Monday at around $91,300.
The markets are likely to be affected by the earnings reports of several major companies this week.
Nvidia will be the main attraction on Wednesday as it is the world’s largest public company. Investors are looking for evidence that Nvidia is benefiting from the AI boom.
Walmart and Target will also be reporting this week on Tuesday and respectively Wednesday. These retail titans will offer a unique perspective of consumer health.
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