Trump's Election-Boosted Stocks Now Struggling; Upcoming Policies Expected to Trigger Market Chaos

Rising bond yields and policy uncertainty have dimmed investor optimism despite strong corporate earnings.

By Thea Felicity

Nov 18 2024, 08:41 AM EST

Republican Presidential Nominee Holds Latino Summit In Miami — DORAL, FLORIDA - OCTOBER 22: People pray with Republican presidential nominee, former U.S. President Donald Trump during a roundtable discussion at the Latino Summit held at Trump National Doral Golf Club on October 22, 2024 in Doral, Florida. With 14 days to go until Election Day, Trump and Democratic presidential nominee, U.S. Vice President Kamala Harris continue to crisscross the country asking for votes. Anna Moneymaker/Getty Images

As expected, news of Donald Trump's win blasted US stocks, dollars, and even cryptocurrencies, to new records. Now, the stock rally is losing steam.

A huge part of the landslide decline is due to worries over inflation and a sense of confusion about Trump's policies that finally weighed on investors' minds.

The S&P 500, which had soared immediately after Trump's win, tumbled 2% last week and cut much of those election gains. Although the index remains near record highs, and up 23% for the year, some of that initial optimism has been tempered by challenges such as higher bond yields and questions over policies from President Donald Trump, Reuters reported.

The primary source of pressure for investors is the ascent of the US bond yields.

Investor Fears Over Trump's Policies

Investors were getting worried by the policies driven by Trump, which include tax cuts and tariffs, and saw the 10-year Treasury yield at a five-month high when that happened. This may mean that interest rates shoot up and a given stock becomes less appealing compared to safer bonds. Investors call this rise in yields a possible threat to the stock market in case of further rise as it may trigger a tighter financial environment, which was what experts prior to the stock rally speculated, per VCPost.

Selections by the cabinet, such as controversial vaccine skeptic Robert F. Kennedy Jr., and the mention of Elon Musk leading an initiative on government efficiency (DOGE), have hurt sentiment.

Uncertainty around which policies will be the focus of this administration has led investors to keep on a "sell first, ask questions later" attitude. Drugmakers and defense stocks have borne the brunt of these uncertainties.

Regardless, some stocks, most notably those mentioned in relation to the business interests of Trump, like Tesla and Bitcoin, are booming. The market sentiment, however, is hostage to the threat of policy regime change that can be growth-fanning or recession-inducing at its whim.

Now, history says going into the last few months of the year often goes very well for the stock market in presidential election years. And with corporate earnings surprisingly well and growth still positive, it's not all bad news, say some investors.