Wall Street is in a very strange moment. While the Nasdaq 100 is experiencing a ‘Christmas rally’ and the S&P 500 is around all-time highs, the Dow Jones this Tuesday broke a negative milestone that has not been seen since 1978: nine consecutive days of falls that have cut the ‘Trump rally’ in half.
The turn is led by Nvidia, which has fallen 10% in the last eight sessions, entering correction territory after a year of unstoppable increases; and the health insurer UnitedHealth, which has plummeted 21%, to bearish levels, since the murder of one of its CEOs in New York. But the reality is that many of the industrial index firms are in the red in recent days, and the Dow Jones has fallen 3.40% in these nine sessions.
For David Russell, global head of market strategy at TradeStation, the explanation is that the stock markets “are realizing that a Trump presidency will not be as good for stocks as they expected”, which has cut back the strong increases recorded after the news. the electoral result, from the 6.61% reached on December 4 to just 3% today. “The financial and industrial sectors took advantage of their victory, but could now face higher rates and trade uncertainties, and health insurers face their biggest political risks in decades,” Russell warns.
Meanwhile, the comings and goings of the chip market are penalizing Nvidia: from the evolution of the quantum computers presented by Google to the commercial battles, which put a gray cloud over the future of the chip giant despite the fact that its results continue to rise. at a good pace. And while Jensen Huang does trade on this indicator, the Dow does not benefit from the rise of Alphabet, for example.
Thus, the flight of the Dow Jones is favoring the ‘magnificent six’ that are not the beaten Nvidia. Apple is already approaching the 4 billion capitalization, Microsoft is around its maximums, Amazon and Alphabet are briskly approaching the 3 billion club and Tesla has already gained 83% since Trump’s victory. Broadcom is another of the winners that is not in the US index and that makes it pale this month compared to the S&P 500 or the Nasdaq 100.
Furthermore, rate expectations continue to move and the electoral victory of the Republican does not favor flexibility. The market is pricing in an almost complete probability that the Federal Reserve (Fed) will announce a rate cut of 25 basis points tomorrow, according to the CME FedWatch tool. However, there are fears that Trump’s mandate will be inflationary, along with an economy that remains strong and does not urgently ask for decreases, which does question the agency’s rate cuts for 2025.
“The US is not out of the woods when it comes to bringing inflation back on target on the bullish side, even before Donald Trump’s policies begin to be implemented. Still, although the Fed’s interest rates remain in restrictive territory, we expect the FOMC to slow down the pace of cuts,” says Gilles Moëc, chief economist at AXA Investment Managers.
This year, both the European Central Bank (ECB) and the Fed will have undertaken a 100 basis point reduction in interest rates, assuming that Jerome Powell will stick to the script tomorrow, Wednesday. But starting next year, the United States central bank is expected to ease off while the European one accelerates. “The market is already less greedy than that, expecting only three declines by 2025,” adds the same strategist.
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