S&P 500 struggles to maintain post-election gains

Stocks wavered as speculation the market has run too far after the US election offset bets the Federal Reserve will keep cutting rates.

Equities lost momentum in the final stretch of New York trading, with the S&P 500 nearly erasing its earlier gains, which had been partly driven by inflation data that met expectations. In the late hours, Cisco Systems Inc. provided an optimistic outlook for the current period; however, its conservative annual forecast resulted in a muted reaction from investors.      

Shorter-term Treasuries outperformed, with the yield on two-year notes declining from its highest levels since July. Swap traders increased the probability of a Federal Reserve interest rate cut on December 18 to about 80%. The dollar maintained its position at a two-year high, while Bitcoin trimmed its gains after previously exceeding $93,000.

A consumer price index that aligned with expectations provided some relief to traders concerned that a higher figure could obstruct potential rate cuts. However, while Wednesday’s CPI report brought some market relief, the latest data also highlights the slow and frustrating struggle against inflation, which has frequently stalled on its broader downward trend.

Oil volatility continues

Global oil markets face a surplus of more than 1 million barrels a day next year as Chinese demand continues to falter, cushioning prices against turmoil in the Middle East and beyond, the International Energy Agency (IEA) said.

Oil consumption in China — the powerhouse of world markets for the past two decades — has contracted for six straight months through September and will grow this year at just 10% of the rate seen in 2023, the IEA said in a monthly report on Thursday. The global glut would be even bigger if OPEC+ decides to press on with plans to revive halted production when it gathers next month, according to the agency.

Amid this extended weakness in Chinese demand, crude prices have retreated 11% since early October despite ongoing hostilities between Israel and Iran, as traders focus growing output in the Americas, the Paris-based IEA said. The decline foreshadows a “well-supplied market in 2025,” it added.

Dollar keeps rising, for how long?

The rally of the US dollar is gaining momentum, fueled by Donald Trump’s threat of implementing sweeping tariffs. Currency strategists are in agreement that the dollar has further room to rise while considering just how high it might go.

On Tuesday, the Bloomberg Dollar Spot Index climbed to its highest level since November 2022, causing the Euro to drop to its lowest point in a year. As a result, foreign-exchange counterparts also faced pressure, with both the Yen and the Canadian Dollar weakening and approaching key psychological levels.

JPMorgan Chase & Co., Goldman Sachs Group Inc., and Citigroup Inc. all expect the U.S. Dollar to continue appreciating from current levels, according to recent strategy notes.

Gold near two-month low

Gold fell for the fifth consecutive day as a rise in the Dollar negatively impacted the metal, even though US inflation data reinforced the case for another Federal Reserve rate cut next month.

Gold bullion fell 0.7% in early trading in London. The Dollar index has reached a two-year high due to expectations that President-elect Donald Trump’s victory will enhance economic growth and increase corporate profits. A stronger dollar makes commodities priced in that currency more expensive for most buyers.

The precious metal has fallen more than 8% from a record high reached on October 31, with the decline accelerating following Trump’s victory in the presidential election. However, prices are still approximately 25% higher this year, supported by the Federal Reserve’s monetary easing measures, central bank purchases, and increasing geopolitical and economic risks that have driven demand for safe-haven assets.

Aussie falls to fresh 3-month low

The Australian dollar has dropped to a new three-month low, primarily due to the strength of the US dollar. Traders are evaluating the outlook for US monetary policy following stable inflation data and the policies of President-elect Donald Trump.

Over the last five sessions, the Aussie has declined by more than 3%, making it the worst performer among its Group-of-10 peers. This decline coincides with a surge in the US dollar and US Treasury yields, driven by expectations of slower-than-expected rate cuts by the Federal Reserve and rising US-China trade tensions under Trump’s “America First” administration.

In the coming month, the Australian dollar is likely to stabilize within a broader range of 0.65 to 0.67.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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