After a solid week of rallies, markets eased off a little yesterday as euphoria surrounding the election finally began to dissipate. US indices all experienced pullbacks on Tuesday, with the Dow in particular losing 0.86% on the day. The S&P 500 also withdrew a little, closing the session 0.3% lower, while the Nasdaq Composite lost a mere 0.1%. Profit-taking extended around the globe, with European and Asian markets also seeing selling pressure. Crypto markets were not immune to the pullback either. After pushing beyond $90k yesterday, Bitcoin is now resting on its laurels before deciding where to go next. Still no loss of momentum in the Dollar however. The DXY continued to rip yesterday, pushing to 106 and briefly reaching highs not seen since May. The push has been particularly detrimental to the Euro, which is now teetering at yearly lows of 1.06 per Dollar. If there is one potential bump in the road for the Greenback, it may come in the form of US CPI data later today. Markets will also be interested to hear what Jerome Powell has to say on Thursday. Precious metals continue to feel the pain. Gold closed below $2,600 on Tuesday, now down almost $200 since its October peak. A surging Dollar certainly isn’t helping, but neither is the prospect of fewer rate cuts from the Fed moving forward. The elephant in the room however is that as the US pushes for a more unipolar world – with itself at the centre – safe-haven assets become a harder sell. Donald Trump is still two months away from being inaugurated and yet various factions around the world, from Gaza to Iran, are already beginning to strike more complacent tones.
Election week may be over, but traders and investors still have their work cut out. The election of President Trump changes the financial landscape and market participants will have to bear this in mind over the next few years. First things first: the US Dollar. The Greenback reacted strongly to the election result, gaining against major competitors to push the DXY up to 105. The Dollar has performed well over the past six weeks, in large part because of a higher interest rate compared to other currencies. The Federal Reserve has been unwilling to slash rates too aggressively because the US labour market has proven robust enough and inflation has been dampened enough to allow for less aggressive action. With Donald Trump at the reigns, the consensus is that inflation may increase again, which means the Fed will be even less inclined to cut rates. Nevertheless, the central bank continues to reiterate that all future decisions will be data driven, i.e. wait-and-see mode for now. US stocks were certainly happy with the election result. The Dow and S&P 500 both gained an impressive 4.6% on the week and the Nasdaq Composite fared even better with a 5.7% weekly close. All three indices ended the week on record highs. Tesla (TSLA) rose a massive 29% last week thanks to both the result and a strong earnings report. Cryptocurrencies took the news best of all. Bitcoin surged 17% last week following the result, dragging the rest of the market along with it. Total crypto market cap increased by almost half a trillion Dollars over the course of the week, bringing it to within closing distance of the 2021 all-time high. In the immediate term, there is not a lot going on this week. Armistice Day in parts of Europe and North America will make for barren trading conditions this Monday. Tomorrow has equally little to offer in terms of tradeable events. Wednesday alleviates the boredom a little with US CPI data, before Jerome Powell delivers a speech the following day. Traders are probably grateful for the reprieve.
An extremely bullish quarterly earnings report from Nvidia paved the way for stock gains across the board last week. The Dow Jones continued to push further into unchartered territory, gaining 1.3% on the week and surpassing 39k for the first time. Similar story for the S&P 500, which ended the week 1.66% higher and further cemented its place above the 5k level. Despite the rally being started by technology companies, the Nasdaq Composite is the last remaining of the big three to have not yet established a new all-time high. The index gained 1.4% on the week but remains a hair’s breadth away from its highest close of 16,057 back in 2021. This is to say nothing of the real record breaker last week: the Nikkei 225. Decade-long records are not broken every day, but the Japanese index’s all-time high finally tumbled from its pedestal last Thursday after 34 years. Commentators could perhaps downplay the significance of the event by pointing to the weakness of the Yen as a contributor to the index’s performance, but where’s the fun in that. The economic calendar does not have much to offer early this week, with the possible exception of new home sales later today. We will have to wait until Thursday to get to the meatier data releases, particularly the Personal Consumption Expenditures (PCE) index. The PCE figures are heavily favoured by the Federal Reserve as being the most accurate inflation gauge. Last week’s FOMC minutes did not garner the attention they are used to, partly because very little surprises were expected, but mostly because the event was overshadowed by a flurry of earnings reports.
The day of reckoning is finally here. Today, Federal Reserve front man Jerome Powell will announce what the entire market widely expects to be very little. No change in interest rates is pretty thoroughly priced in at this point so expect anything other than that to provoke a strong reaction. Inflation came in yesterday, the November MoM rate a tiny bit higher than expected; CPI equally above expectations although nothing worth writing home about. Macroeconomic data aside, stocks remained unphased. The S&P 500 continued its recent winning streak to rise to 4,643 points by yesterday’s close. Nasdaq Composite also performed well, gaining 0.70% on Tuesday to reach 14,533. Both indices are now at their highest for the year. This is to say nothing of the Dow Jones however, which has now risen to within spitting distance of its previous all-time high set back in January 2022. The drama isn’t just contained to the US either, the German DAX index entered all-time high territory last week and the French CAC 40 briefly broke new ground on the intraday during yesterday’s session before closing lower. In stark contrast, Hong Kong’s Hang Seng index continued to make fresh lows this week, falling to 16,201 on Monday, now down almost 30% since its peak in January. Gold continued its fall from grace this week, losing 1.13% on Monday before trying and failing to make up for it on Tuesday, closing under $1980 an ounce. While we’re on commodities, oil too vigorously resumed its downtrend on Tuesday, Brent Crude falling 3.4% to close under $74 a barrel, WTI now under $69. Without a change in supply and demand dynamics, many traders see little reason for optimism.
