“Soooooo, about that post-election rally.” That’s what ran through my mind after last week’s swoon.
Take a look at the MoneyShow Chart of the Week here, which shows trading in the SPDR S&P 500 ETF Trust (SPY) over the last 15 days. You can see the post-election surge, and the recent “giveback” move on heavy volume. Not only was last week the worst for the S&P 500 since September, but it also wiped away about 60% of the “Trump Trade” rally.
Source: Yahoo Finance
I shared the biggest force behind the market stumble in a special MoneyShow YouTube Short video this morning. Bottom line? The incoming administration is facing an “Own Goal” problem. Markets are getting concerned that no one on the Trump team is talking about fiscal discipline and/or pledging to keep government debt and deficits from going too quickly over the next four years.
Long-term Treasuries are selling off as a result, driving interest rates higher. And because rates have risen far enough and fast enough, stocks are now selling off, too.
The situation CAN be rectified. Officials can throw the bond market a bone by noting the concerns and promising to address them. Or better yet, by putting some concrete figures out there about government spending cuts or more-modest debt and deficit growth targets.
Meanwhile, this looks like just a technical consolidation SO FAR, versus a full-on “breakout fake out.” Things like the Financial Select Sector SPDR Fund (XLF) aren’t giving up much ground, for one thing. For another, even the iShares Russell 2000 ETF (IWM) is only retesting its prior highs rather than breaking back below them.
So no, I’m not donning a bear suit here. But unless and until we get a shift in messaging out of the incoming administration, we might continue to see market volatility. And we might see any seasonal “Santa Claus” rally get put on hold. Trade accordingly.
