Bull market runs have many ways of ending. Indices like the S&P 500 (SPY) may trade in a range before falling. Other times, they may fall sharply on heavy volume. On Wednesday, stock markets did not expect the Fed would change its dovish tone.
The U.S. central bank is bracing for President-Elect Trump to impose tariffs on its trading partners. 25% tariffs on goods from Mexico and Canada would potentially cause up to 25% inflation for Americans. The impact depends on what the latter two countries do. As a result, the Fed needed to adjust its monetary policy.
The Fed could not continue blindly cutting rates when inflation rates today are still above its 2.0% target.
Negative Momentum Started
The bear market potentially started yesterday. Selling volumes may increase as investors sell their magnificent seven technology stocks and pricey Nasdaq holdings. They may also book capital gains tax losses on companies like Moderna (MRNA), CVS Health (CVS), and Walgreens (WBA).
Your Takeaway
Watch the daily trading volume, breadth (number of stocks up compared to lower), and headline news. The stock market may see a rotation out of interest rate-sensitive REITs like WP Carey (WPC) and Simon Property Group (SPG). Investors may buy Devon Energy (DVN) or EQT (EQT) at discounted prices.
