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President-elect Donald Trump’s Favorite Economic Barometer Takes a Hit
President-elect Donald Trump’s favorite barometer of his success – the stock market – had been humming since his reelection. Business-friendly promises of deregulation and tax cuts got investors excited with anticipation of unlocked profit and easy money. And then reality set in this week.
New York (CNN)
Federal Reserve Chair Jerome Powell in a press conference Wednesday reminded markets who’s boss: The Fed said inflation will remain higher than expected next year, and that it is now pricing in just two rate cuts in 2025, rather than the four it had expected during its previous projection in September.
This news plunged the market, with the broad-based S&P 500 tumbling 3%. The Dow lost more than 1,100 points, falling for the 10th straight session – the longest such losing streak since 1974.
The Federal Reserve’s projections on rates and inflation were like a “punch in the face to the market,” said Art Hogan, managing director and chief market strategist at B. Riley Investments. “That got everyone spooked,” he added.
The market’s strong reaction shows that the Fed, ultimately, could weigh more heavily on markets than Trump’s policymaking going forward.
The Fed on Wednesday delivered the much-anticipated quarter-point cut investors were banking on, but traders were left shellshocked by central bankers’ 2025 forecast. For markets, fewer rate cuts could mean lower-than-expected earnings, less hiring, and a weaker-than-expected economy.
In contrast, stock gains under Trump have been almost entirely erased. The Dow, which had risen nearly 2,800 points since Election Day before its epic slide started, ended Wednesday with a total gain of just 100 points since Trump was reelected.
Powell just reminded us that nothing in life comes easy, Callie Cox, chief market strategist at Ritholtz Wealth Management, said. It was always hard to completely trust the rally that we saw in markets post-Election Day. A lot of it seemed like investors threw a lot of context away, and they just took what they wanted from policy speculation.
The external factors of how his policy proposals, including widespread tariffs, could negatively impact the economy and how the Fed will have to respond will now come to the forefront, Hogan said. This last mile is going to take longer, he added.
Instead of delaying selling until early 2025, investors decided it might be best to start taking some profits now, said Sam Stovall, chief investment strategist at CFRA Research. FOMO (the fear of missing out) usually ends up being a portfolio’s worst enemy.
Stocks were set to bounce back somewhat on Thursday. The epic losing streak may be coming to an end. But investor sentiment appears to have just come back down to earth. Going forward, they’ll probably be paying closer attention to the Fed than Trump.
The Fed wields power to move markets unlike any other institution in America, said Rob Haworth, senior investment strategist at US Bank Wealth Management. It’s as if Powell on Wednesday was saying to Trump: I am in charge.
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