The S&P 500 has erased all its gains since Election Day. The index fell to 5,773.31 at intraday lows on Monday, below its close of 5,782.76 on November 5. This change shows market sentiment worsens as traders prepare for higher interest rates.
They also question whether President Trump’s protectionist policies will deliver the expected economic growth. Stock prices started to stumble in mid-December after the Federal Reserve changed its guidance for rate cuts in 2025. The Fed destabilized the bullish outlook for many investors betting on lower rates and Trump’s pro-business stance to drive US economic growth.
After cutting rates by a quarter of a point in December, Fed officials raised their inflation expectations for the coming year. They also scaled back their outlook for further easing, forecasting only two rate cuts in 2025, down from four. The outlook for rate cuts became more uncertain as traders eyed inflationary risks from some of Trump’s tariff plans.
Market sentiment worsens amid rate rise.
Sentiment about his second term became more pessimistic as investors considered the possibility of higher inflation. According to the Cleveland Fed, one-year inflation expectations climbed in December to 2.64%, the highest in six months.
Although Trump has pledged to lower prices during his presidency, economists have expressed concerns about his broader tariff plans this time around. During his first term, Trump levied tariffs without a significant rise in inflation, but experts warn his new plans could have a broader impact. Last week’s strong employment report further fueled investor anxiety, suggesting the Fed had little room to cut interest rates.
The yield on the 10-year US Treasury rose to 4.794% on Monday, its highest level since late 2023. Ed Yardeni, president of Yardeni Research, wrote in a note: “In this context, Friday’s strong employment report only served to cement investors’ sense that the Fed should pause its easing. Both bond and stock markets reacted like the sky was falling.
Markets are still expecting one or two rate cuts by the end of the year, but forecasts across Wall Street are increasingly cautious.
In the American Association of Individual Investors’ latest sentiment survey, over 37% of investors reported a bearish outlook on stocks for the next six months. This marks the most pessimistic reading in six weeks.
