Profit-Taking Wave: Wall Street Indexes End Day Lower
The key U.S. stock indexes closed lower on Tuesday as investors sought to take profits after the recent rally that began amid the presidential election. Markets are anxiously awaiting fresh U.S. inflation data this week, which could significantly impact future price action.
Post-Election Records: Investors Assess Prospects
Stock indices have been on a tear since the November 5 election, buoyed by new President Donald Trump's promises to cut taxes and loosen business regulations. Market participants have been buying up shares, hoping that these measures will support economic growth and revive the corporate sector.
Inflation Concerns Have Cooled Enthusiasm
However, optimism in the market declined on Tuesday, as investors began to worry that the policies proposed by the Trump administration could trigger a rise in inflation. Amid these concerns, European markets also fell, losing 2%, after statements from the European Central Bank, who warned that higher tariffs from the United States could hurt the global economy.
Tesla and Others Lose Ground After a Jump
Some companies that investors had previously been buying up in anticipation of their rise under the new administration have retreated after reaching peaks. Tesla (TSLA.O) shares fell 6% on Tuesday, despite an impressive 40% gain since the election.
Economic growth is a positive sign, but bonds are under pressure
Karen Karniol-Tambour, co-chief investment officer at Bridgewater Associates, emphasized at the Yahoo Finance Invest conference that despite the risks, U.S. stocks remain attractive assets amid the expected sustainable economic growth in the U.S. She noted that this dynamic is supporting the stock market, although the yield on 10-year Treasury notes has already reached a four-month high, rising amid an expected review of economic policy.
Russell 2000 - from peak to trough
The Russell 2000 small company index (.RUT) fell 1.8%, although on Monday it finished trading at the highest level in the last three years. Meanwhile, rising Treasury yields have added pressure on stocks as bond investors begin to price in the Trump administration's future policies.
Treasuries as a Worry Signal for Stocks
Jack Ablin, chief investment officer at Cresset Capital, described the current situation as a difficult balance, with rising 10-year Treasury yields creating a headwind for the stock rally. "On the one hand, investors are cheering about the stimulus package, but on the other, the bond market is signaling its displeasure," he explained.
Ablin added that tariffs, tax breaks, and immigration restrictions could fuel inflation, something that is not lost on the bond market, which is sensitive to such developments.
Global Impact and Inflation Data Expectations
Ameriprise Financial Chief Economist Russell Price noted that U.S. stocks were also pushed lower by weakness in overseas markets and profit-taking ahead of key U.S. inflation data. The consumer price index is due out on Wednesday, followed by producer price and retail sales data, both of which could shed light on the Federal Reserve's policy outlook.
These data add short-term risks for investors, Price said. "It's likely the anticipation of these numbers that is driving the modest declines we've seen in the markets today," he said.
Wall Street Closes Lower as Major Indexes Slip
The Dow Jones Industrial Average (.DJI) ended the day down 382.15 points, down 0.86% to 43,910.98. The S&P 500 (.SPX) fell 17.36 points, or 0.29%, to close at 5,983.99, while the Nasdaq Composite (.IXIC) lost 17.36 points, or 0.09%, to close at 19,281.40.
Amgen Under Pressure, Sliding Late
The biggest decliner on the Dow was Amgen (AMGN.O), which fell more than 7% amid a sell-off that intensified toward the end of the session. Amgen shares fell after Cantor Fitzgerald said it could cause side effects from its experimental obesity drug MariTide, which showed a 4% drop in bone mineral density.
Materials and Healthcare Down, Communications Gaining
Among the 11 key S&P 500 sectors, Materials (.SPLRCM) saw the biggest decline, falling 1.6%. The second-largest loser was Healthcare (.SPXHC), with Amgen accounting for a significant portion of the losses. In contrast, Communications (.SPLRCL) was in the green, gaining 0.5% on the day.
Fed Focus: Kashkari and Barkin Assess
The markets also took notice of statements from the Federal Reserve. Minneapolis Fed President Neel Kashkari on Tuesday said current U.S. monetary policy remains "moderately restrictive" and is helping to slow inflation and the economy, albeit only slightly. Richmond Fed President Thomas Barkin, meanwhile, said the Fed is prepared to take action if inflation risks intensify or the labor market shows signs of weakening.
Novavax Slips as Revenue Forecast Cuts
Biotech company Novavax (NVAX.O) shares fell 6% after the company announced it was cutting its full-year revenue forecast. The reason was weaker-than-expected sales of its COVID-19 vaccine, which disappointed investors.
Honeywell at its peak: Elliott Investment backs it
Meanwhile, Honeywell (HON.O) shares soared 3.8% to a record high. The rally came as activist investor Elliott Investment increased its stake in the company by more than $5 billion, giving investors confidence in the industrial giant's future growth.
Stocks on the market: More decliners than gainers
Declining stocks were significantly outnumbered on the New York Stock Exchange, with a ratio of 3.48 to 1. Meanwhile, the NYSE recorded 328 new highs and 101 new lows. Declining stocks also outnumbered advancing ones on the Nasdaq, with 3,012 of the 4,336 shares trading down and 1,328 gaining. The S&P 500 posted 55 new 52-week highs and 16 new lows, while the Nasdaq Composite added 193 new highs and 129 new lows.
Volumes on the rise, Asian stocks under pressure
Total trading volume on U.S. exchanges reached 15.29 billion shares, above the 20-session average of 13.17 billion. Meanwhile, Asian stocks also fell on Wednesday, as a sharp rise in U.S. bond yields fueled worries ahead of key inflation data that could impact the Federal Reserve's monetary policy decisions.
Short-term bond yields rise, dollar strengthens
Short-term U.S. Treasury yields rose sharply on Tuesday, hitting their highest since late July. The move also helped the dollar strengthen, hitting a more than three-month high against the Japanese yen as the market reopened after the Veterans Day holiday.
Trump Policy and Inflation Expectations
Since Donald Trump was elected president, rising bond yields have been a clear trend as market participants anticipate that promised tax cuts and tariffs could lead to a larger budget deficit and more government borrowing. Such a scenario, analysts say, would also fuel inflation, making it harder for the Fed to cut interest rates further.
Tug of War: Stocks and Bonds
Against this backdrop, the U.S. stock market enjoyed a record rally, but that optimism quickly turned to caution as bond yields began to rise. Kyle Rodda, senior financial markets analyst at Capital.com, noted that the move remains part of the so-called "Trump trade," which is based on the idea of more deficit spending. "However, as we have seen before, higher risk-off asset rates are starting to put pressure on equity valuations, creating a tug-of-war between the bond and equity markets," he added.
Bitcoin Returns to Record High: Betting on Trump's Crypto-Friendly Policy
Bitcoin is slowly but surely moving towards its all-time high, approaching the $90,000 mark. Its price is currently hovering around $88,195, reflecting market participants' expectations inspired by Trump's promise to turn the US into a global crypto hub. Investors are hoping that possible regulatory easing will give the cryptocurrency a new boost.
China in Focus: Commodity Market Weakening
Meanwhile, global commodities have come under pressure as traders are worried about China's economic outlook, which may have to contend with new trade tariffs from the US. The economic stimulus measures announced by Beijing have not yet inspired confidence in the ability of market participants to quickly recover the largest Asian economy.
Asian Markets Tumble
Asian markets are also down, with Hong Kong's Hang Seng Index (.HSI) down 0.9%, while the mainland China Property Index (.HSMPI) fell 1.3%. Chinese blue chips (.CSI) were unchanged. Japan's Nikkei (.N225) and South Korea's Kospi (.KS11) fell 1.1% and 1.2%, respectively, while Australia's (.AXJO) also fell 1.1%, weighed down by commodity stocks.
US Futures and Bond Yields: Sustained Tension
S&P 500 futures are down 0.1%, continuing their gains after an overnight 0.3% drop. Meanwhile, the yield on two-year Treasury notes hit 4.34%, the first time it has risen to 4.367% since late July. The 10-year yield remains at 4.43%, not far from the four-month high of 4.479% set immediately after Trump's landslide election victory.
Dollar on the cusp: Yen strength raises expectations of intervention
The dollar hit 154.94 yen for the first time since late July before falling back to 154.56 yen. That brings the dollar/yen pair closer to the important 155 yen threshold, which many analysts see as a potential point at which Japanese policymakers could intervene verbally to prevent the yen from weakening further.
Japanese policymakers ready to act
Last week, Atsushi Mimura, head of the Japanese Ministry of Finance's foreign exchange bureau, stressed that Japanese policymakers are prepared to act quickly if there are significant exchange rate movements, raising market expectations of possible intervention.
Dollar Index at Spring Highs
The U.S. dollar index, which tracks the currency against a basket of six major currencies including the yen and the euro, settled at 105.92, just off Tuesday's high of 106.17 — the highest since early May.
Fed Rate Cut Prospects: Chances Dim
The chance that the Federal Reserve will cut rates by a quarter point at its next meeting on Dec. 18 is now 60%, down from 77% a week ago, according to CME Group's FedWatch tool.
The release of U.S. consumer price index (CPI) data later Wednesday could further weigh on those expectations. Economists are forecasting a 0.3% monthly increase in the core measure, which could dampen hopes for a rate cut.
Euro at one-year low
The euro is trading at $1.0625 after slipping overnight to $1.0595, its lowest in 12 months, reflecting the dollar's resilience amid expectations of a stronger US economy.
Europe under attack: Trump's tariffs will impact
As in China, concerns about US trade policy are growing in Europe. Trump said earlier that the EU would "pay a heavy price" for not importing enough US goods, putting the bloc's economy at risk and adding uncertainty to trade relations.
Copper prices fall: Demand weakens
On the London Metal Exchange, copper prices fell 2% to their lowest in two months. The drop reflected weakening demand for the metal, much of which comes from China, where the economy is also under pressure from global tariffs and domestic problems.
Oil remains under pressure: OPEC forecasts are cut
The global oil market is also going through difficult times. On Tuesday, OPEC revised down its forecasts for global oil demand growth, noting the slowdown in the Chinese economy and weakness in some other regions. Against this background, Brent crude futures rose by 0.2%, reaching $72 per barrel, and American WTI also rose by 0.2%, to $68.26, but remained close to monthly lows.
Gold tries to recover
On the precious metals market, gold strengthened slightly, adding 0.4% and reaching a price of about $2,607 per ounce. This small increase was an attempt by the metal to recoup losses after falling to a nearly two-month low in the previous session, caused by the strengthening dollar.
