Signs of fatigue were evident even at the market’s hyperactive edges. Bitcoin, whose straight-up route has been a hallmark of Trump euphoria, fell back below $100,000, sending Michael Saylor’s MicroStrategy Inc. down more than 10%. A closed-end fund that owns private-company stakes, Destiny Tech100 Inc., slid about 15%, while the ARK Innovation ETF saw its biggest outflow in a month in the wake of the Fed meeting.
“There were a lot of people, even people who expected a hawkish Fed meeting, who were surprised,” said Max Gokhman, senior vice president at Franklin Templeton Investment Solutions. “Then, the tug and pull kind of came back between those who believe that we’re going to unleash the animal spirits through the new president’s agenda and those who think that there is going to be significant inflation that’s unleashed instead, and that actually is going to drive down stock prices.”
In short, investors who grew euphoric over Trump’s tax-cut and deregulation promises now must balance the outlook with a more tangible risk that inflation has yet to be subdued, courtesy of Powell. The Fed chief stopped short of implicating the president-elect’s policy priorities in the central bank’s toughening inflation posture — but didn’t completely dismiss them, either.
Fear Gauge
Confusion over which input to heed has been a recipe for cross-asset volatility. The VIX, Wall Street’s “fear gauge,” spiked above 28 on Wednesday, a level not seen since August, only to settle back below 20 on Friday. Ten-year Treasury yields went nine straight days without falling through Thursday, then eased when the so-called core personal consumption expenditures index posted its slowest monthly advance since May.
US 10-year yields have now climbed some 37 basis point in two weeks, the biggest jump over such a stretch this year, while exchange-traded funds tracking investment-grade and high-yield bonds have slipped. In crypto, Bitcoin posted two of its worst losing sessions of the quarter on Thursday and Friday, though remains up more than 100% since this time last year.
Not everyone is getting hammered by the recent market twists. Alessio de Longis, head of investments at Invesco Solutions, said that since July, he’s held positions that profit if stocks trail bonds or defensive equities rise. Those had been painful ones to hold as investors went giddy for Trump.
“We are beginning to see that unwind already,” de Longis said. “The election trades are finding fatigue.”
