The stock market has been relatively muted since President Trump’s inauguration in January, despite hitting a record high on Feb. 19. The S&P 500 has fallen almost daily. It is now lower than when Trump took office.
Other indexes more closely tied to the economy have also fallen. Investors are growing increasingly nervous about an impending sell-off. Consumer sentiment is souring, and there is uncertainty over the many policy proposals coming from Washington.
Andrew Brenner, head of international fixed income at National Alliance Securities, said, “The tariff rhetoric has become daily and extreme. The sentiment is awful, and trading is on edge.”
The market today is fundamentally different than it was during Trump’s first term. Interest rates are roughly four percentage points higher as the Federal Reserve tries to combat inflation. Valuations are also at historic highs after the S&P 500 rose more than 20 percent for two consecutive years.
The market’s composition has also shifted. The huge companies driving the A.I. boom, known as the Magnificent Seven, now account for about a third of the S&P 500 by market value.
Market outlook amidst investor anxiety
As their share prices fall, they weigh the market down. Nvidia, which makes chips for A.I. companies, has fallen almost 10 percent since the inauguration. Trump has been relatively quiet about the stock market lately, a change from his first term when he regularly cited soaring share prices to measure his success.
At a conference on Feb. 19, the day the S&P 500 notched a record high, Trump said, “I think the stock market’s going to be great.” However, he exaggerated the gain made by the Dow Jones Industrial Average since the election. Investors are notably nervous, with few foreseeing a full-blown recession but many wary of the market’s uncertain direction.
Almost 90 percent of a Bank of America survey respondents said stocks are overvalued. The CBOE Skew Index, which measures how much investors prepare for a sell-off, reached its highest level on Feb. 18.
This nervousness could explain why the market is no longer the barometer of success that Trump once claimed it was. With big tech languishing and the potential for trade wars and crimp economic growth, engineering a buoyant stock market may prove challenging for the administration.
Image Credits: Photo by PiggyBank on Unsplash
