The stock market has encountered significant uncertainty attributed to the tariff policies implemented by the Trump administration. Investors, particularly concerned about potential "policy errors," are closely monitoring the situation. According to Jason Draho, UBS head of asset allocation and CIO for the Americas, while a policy error remains unlikely, its mere possibility could contribute to market volatility.
Areas initially expected to benefit from Trump's policies have felt the effects of recent market shakiness. The cryptocurrency trade, for instance, has lost momentum, with bitcoin falling below $90,000. Meanwhile, the Energy Select Sector SPDR Fund (XLE) has experienced less than a 1% increase since Election Day and has declined since Trump's inauguration.
Conversely, markets in China and Europe have shown resilience and strength in recent times. Despite the challenges, the U.S. stock market remains near record highs. Financials have managed to retain more of their gains, with the Financial Select Sector SPDR Fund (XLF) marking a 9% increase since Election Day. However, the Industrial Select Sector SPDR Fund (XLI) and Materials Select Sector SPDR Fund (XLB) have seen declines since the election.
The Federal Reserve's decision to pause its rate cuts last month has also played a role in the current financial landscape. Additionally, leaders in Washington, D.C., have yet to reach an agreement on a budget plan that would extend the tax cuts introduced during Trump's first term. This uncertainty adds another layer of complexity to the economic puzzle.
Raymond James strategist Tavis McCourt noted the broader global theme impacting U.S. equities:
"The broadening theme is global, and it's a headwind for U.S. Equities after ~7 years of being global flows being a consistent tailwind," – Raymond James strategist Tavis McCourt
The S&P 500 remains up approximately 3.5% since November 5, the last trading session before Trump's victory. However, the small-cap Russell 2000 index has slipped below its levels from Election Day.