Key Wall Street indices finished lower on Tuesday as investors took profits from a post-election surge and adopted a cautious stance ahead of upcoming U.S. economic reports.
The three primary indices had surged to all-time highs since the Nov. 5 U.S. election as investors anticipated a positive impact on stocks from President-elect Donald Trump’s proposed tax reductions and the likelihood of more lenient regulatory measures.
However, on Tuesday, investor enthusiasm waned. European stocks fell by 2% as European Central Bank officials cautioned that rising tariffs under Trump would impede global economic growth.
Certain stocks anticipated to thrive under Trump surrendered their gains, with electric car manufacturer Tesla’s shares declining during Tuesday’s trading session after a nearly 40% increase since election day.
The small-cap Russell 2000 index retreated after achieving a three-year high on Monday. Additionally, increasing U.S. Treasury yields negatively impacted equities as bond traders factored in Trump’s potential policies.
“The 10-year Treasury yield is essentially creating a headwind against the equity rally. We are seeing these mixed signals where investors are excited about various growth initiatives, yet the bond market is reacting negatively,” remarked Jack Ablin, chief investment officer at Cresset Capital.
“The issue lies in the combination of tariffs, tax cuts, and immigration constraints; this is indeed exerting inflationary pressure that the bond market cannot overlook.”
Russell Price, chief economist at Ameriprise Financial, noted that declines in overseas equities added pressure to U.S. stocks, coupled with profit-taking as inflation data approached.
“When we opened, we were already seeing some downturn due to the robust rally we’ve experienced, leading investors to take some profits in case stocks continue to decline,” Price explained.
On the agenda for investors is Wednesday’s consumer price inflation information, followed by producer prices and retail sales data later in the week, as these could offer insights into the future direction of U.S. Federal Reserve policy.
Price identified the data as a short-term risk to investments. “It likely contributes to a portion of the downward movement we’re witnessing today.”
As per preliminary data, the S&P 500 declined by 17.17 points, or 0.29%, closing at 5,984.18 points, while the Nasdaq Composite dropped 16.00 points, or 0.08%, to settle at 19,282.76. The Dow Jones Industrial Average saw a decrease of 377.45 points, or 0.85%, ending at 43,915.68.
Markets have already adjusted expectations regarding interest rate cuts for the upcoming year, considering strong economic indicators and the potential inflationary effects of certain Trump policies.
Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated on Tuesday afternoon that the U.S. monetary policy remains “modestly restrictive,” with short-term borrowing rates continuing to suppress inflation and economic growth, though not significantly.
Earlier in the day, Richmond Fed President Thomas Barkin mentioned that the U.S. central bank stands ready to act if inflationary pressures escalate or the job market deteriorates.
Biotechnology firm Novavax saw a decline after it reduced its annual revenue projections due to lower-than-anticipated sales of its COVID-19 vaccine.
Honeywell achieved a record high after activist investor Elliott Investment disclosed that it has acquired a stake valued over $5 billion in the industrial company.
Wall Street firms are anticipated to dispense larger bonuses this year, marking the first increase since a strong 2021, according to a report from compensation consultancy Johnson Associates.
Payouts are likely to increase as financiers benefited from several recent factors: a rebound in deal-making, Federal Reserve interest rate cuts, and equity markets reaching new highs, stated the consultancy’s founder, Alan Johnson.
“This year has turned out surprisingly well, and the industry holds optimistic expectations for 2025, especially with the potential for more M&A announcements,” he said, referring to mergers and acquisitions.
Although bonuses will be more substantial, they will still fall short of the record levels seen in 2021, which was characterized by “abnormally high” revenue and compensation, according to Johnson.
Investment bankers involved in debt underwriting are expected to see the most significant bonus increases of 25% to 35% for 2024, driven by a resurgence in activity. Their equity capital markets peers are likely to experience boosts in the range of 15% to 25%.
In contrast, a slower recovery in M&A activity will lead to more modest bonus growth of 5% to 10% for bankers advising on transactions.
Traders are also poised to gain from heightened volatility and rising equity prices, the report suggested. Equity sales and trading professionals can anticipate bonus increases of approximately 15% to 20%, while fixed income payouts may rise by 5% to 10%.
