The S&P 500’s postelection rally has been erased

The stock-market rally fueled by Donald Trump’s election win — which extended as far as 5.5% — has been wiped out.

The benchmark S&P 500 fell to 5,773.31 at intraday lows on Monday, below its close of 5,782.76 on November 5.

It’s a testament to souring market sentiment as traders brace for higher interest rates and question whether the president-elect’s protectionist policies will be the growth-rocket fuel they originally envisioned.

Stock prices began to stumble in mid-December after the Federal Reserve adjusted its guidance for rate cuts in 2025. Cracks formed in the bull case for investors, some of whom were banking on lower rates and Trump’s pro-business stance to unleash a wave of growth in the US economy.

After cutting rates by a quarter of a point at its December policy meeting, Fed officials lifted their inflation expectations for the coming year and lowered their outlook for further easing. FOMC members penciled in only two rate cuts in 2025 — down from four — sparking a sharp sell-off in equities.

The outlook for rate cuts grew more challenged as traders eyed inflationary risks stemming from some of Trump’s tariff plans. Sentiment about his second term turned more dour as investors weighed the possibility of higher inflation.

One-year inflation expectations climbed in December to 2.64%, the highest in six months, according to the Cleveland Fed. Bond yields also surged as interest-rate expectations climbed.

Though Trump has pledged to lower prices during his presidency, economists have said his tariff plans could cause inflation and interest rates to rise. Trump levied tariffs during his first term without a significant increase in inflation, but experts say his plan this time around is wider reaching.

Investors threw another tantrum last week after a hot December jobs report indicated the Fed had little room to cut interest rates. The yield on the 10-year US Treasury on Monday edged up to 4.794%, its highest level since late 2023.

“In this context, Friday’s strong employment report only served to cement investors’ sense that the Fed should pause its easing,” Ed Yardeni, the president of Yardeni Research, wrote in a note. “Both bond and stock markets reacted like the sky was falling.”

Markets are still expecting one or two rate cuts by the end of the year, but the number of forecasts across Wall Street that the Fed may not cut interest rates at all is growing.

In the American Association of Individual Investors’ latest investor-sentiment survey, more than 37% of investors said they were bearish on stocks over the next six months, the most pessimistic reading in six weeks.