The Trump stock euphoria starts to fade

livemint.com:

Subscribe to enjoy similar stories. Can the postelection market rally continue? Some on Wall Street are skeptical. Investors cheered the unexpected Republican sweep of the presidency and both houses of Congress, salivating over the potential for new pro-business policies.

Stock indexes set records, and stock funds posted historically high inflows. That rally has faded as President-elect Donald Trump fills out his cabinet and analysts grasp for policy details. Perhaps the most crucial question for markets: How serious is Trump about tariffs, which are widely regarded as inflationary and could reach their highest level since the 1930s if delivered as promised? “We think the inflation battle was almost won coming into the election," said Kevin Khang, head of global economic research at Vanguard.

“But a potential tariff, depending on what the policy actually looks like, could have a big impact." The Trump presidency makes Vanguard “more cautious" on its economic growth forecast. His term could stoke inflation, Khang said, both through tariffs and because deportations of immigrants would tighten the labor-market supply, especially in perennially understaffed industries such as construction and hospitality. The S&P 500 has soared 24% this year, buoyed by artificial-intelligence hype and optimism that lower inflation means less-restrictive monetary policy going forward.

Lower interest rates typically encourage risk-taking and help boost stocks, and the Federal Reserve has slashed its benchmark rate twice since September. But Fed officials are publicly questioning whether further cuts are needed right now as more data point to a strong economy. Derivative traders are currently pricing in several more rate cuts in 2025, and