Nasdaq Forecast: Fed Policy and Inflation Data Keep Markets on Edge

Markets Stall After Post-Election Surge: Is the Rally Losing Steam?

U.S. markets paused Tuesday after a powerful four-day rally that propelled major indexes to record highs following the U.S. presidential election. The S&P 500 slipped, ending its winning streak, while the Dow shed triple-digits, and the Russell 2000 index fell almost 2%. Investors had shown enthusiasm for potential Trump policies, including lower corporate taxes and lighter regulations, but many locked in gains ahead of upcoming inflation data that could influence the Federal Reserve’s next moves.

At 18:48 GMT, the Dow Jones Industrial Average is trading 44060.04, down 233.09 or -0.53%. The S&P 500 Index is at 5984.43, down 15.92 or -0.28% and the Nasdaq Composite is trading 19267.33, down 31.43 or -0.16%.

Which Sectors Are Under Pressure?

Several sectors faced pullbacks from post-election highs, including consumer discretionary, materials, and utilities, each dropping over 1%. Tesla, which saw a significant surge of nearly 40% since Election Day, fell 3.4% on Tuesday. Trump Media & Technology Group, another stock closely tied to expectations of Trump-friendly policies, dropped 8%. Meanwhile, cryptocurrency stocks softened as bitcoin retreated from recent record levels, with miners Marathon Digital Holdings and Riot Platforms down 2.7% and 5.1%, respectively.

Earnings news drove individual stock moves, with Shopify climbing 26% after exceeding revenue forecasts, and Honeywell rising 3% following a $5 billion stake acquisition by Elliott Management. However, TreeHouse Foods tumbled 16% on disappointing results, while chemicals company Mosaic dropped 9% after underwhelming quarterly numbers and a CEO change announcement.

Will Inflation Data Influence Fed Policy?

Investors are now closely watching economic data releases later this week, especially the consumer price index (CPI) and producer price index (PPI). Both inflation gauges could shape the Federal Reserve’s monetary policy decisions, with markets currently pricing in a 65% chance of a December rate cut. Rising inflation, however, might compel the Fed to slow or pause rate cuts to prevent economic overheating. Quincy Krosby, chief global strategist at LPL Financial, noted that the inflation data “will be central” in assessing the Fed’s path forward, as any signals of sustained price increases could shift the Fed’s recent dovish stance.

Can Stocks Maintain Their Gains?

With inflation data on the horizon, the market’s outlook hinges on balancing investor optimism about potential Trump policies against the risk of rising prices and interest rate pressures. The blue-chip Dow was particularly affected on Tuesday by declines in healthcare and financial stocks, with UnitedHealth and Goldman Sachs among the leading laggards. A potential halt to rate cuts could further impact rate-sensitive sectors, posing a challenge to sustained market growth.

Outlook: Cautious Optimism Amid Inflation Concerns

The immediate outlook remains cautiously positive, with traders eyeing continued market support from a potentially pro-business administration. However, rising inflation could pressure the Fed to hold back on rate reductions, slowing equity gains. As inflation data is released, investors will weigh these results closely, adopting a watchful approach that balances policy expectations with economic fundamentals to guide trading decisions.