• US major indices end 5-day rally as profit taking sets in
• But bullish structure remains firmly in place
• Focus on Trump’s cabinet ahead of Nvidia earnings

‘Trump trade’ in full swing

US voters may have given Donard Trump a resounding yes, but investors gave their own thumbs up to the incoming Republican administration by pushing shares on Wall Street to all-time highs. The S&P 500 notched up its 50^th record close of the year on Monday, finishing above the 6,000 level for the very first time. The Nasdaq 100’s record-setting streak ended a bit earlier on Friday, though the broader Nasdaq Composite and the Dow Jones also extended their impressive run into Monday.

Among the Big Tech, Tesla has been the main winner as investors bank on the company enjoying the fruits of its CEO Elon Musk’s cosy relationship with the president-elect. But tech stocks have not been the top performers following Trump’s election victory. The consumer discretionary sector has been the biggest winner within the S&P 500, gaining 7.0% in the election aftermath, followed by financials. Unsurprisingly, health care stocks have underperformed but have fared better than the real estate sector.

Has the rally run its course?

But it seems that the post-election rally has started to fade as Wall Street ended slightly lower on Tuesday and futures are currently trading flat on the day. Investors will likely wait for more details to emerge about Trump’s new administration, and for any policy leaks ahead of his formal return to the White House on January 20.

For the markets, the most important appointment is that of the Treasury Secretary. The current favourite is Scott Bessent – a hedge fund manager and an adjunct professor at Yale University. However, investors will likely welcome anyone to the post that has a Wall Street background.     

Investors might be overlooking Fed risks

In the meantime, traders are switching their attention back to Fed policy as the odds of a December rate cut have been fluctuating lately. Markets initially ignored subtle hints about the possibility of a pause by Powell in his post-meeting press conference last week. But a stronger warning by Minneapolis Fed President Neel Kashkari on Tuesday made more of a mark in interest rate futures.

The October CPI report released on Wednesday managed to ease concerns about a Fed pause even as America’s headline inflation rate ticked up to 2.6%. Should expectations about a 25-bps cut at the December FOMC face more setbacks, it’s likely to push up Treasury yields to fresh multi-month highs.

So far, Wall Street has brushed off the surge in yields. But if they resume their uptrend, particularly if the 10-year yield surpasses the 4.50% level, then it could become more difficult for stocks to continue their advance in unchartered territory, at least until there are more concrete developments on the Trump economic policy side of things.

Can Nvidia earnings reenergize the bulls?

However, earnings will also be key as Nvidia has yet to report its Q3 results. With AI mania having powered much of the 2024 gains in equities, Nvidia’s earnings announcement on November 20 is potentially the biggest risk for the stock market in the near term.

The AI behemoth is expected to post earnings of $0.73 per share and revenue of $32.6 billion for the October quarter. Better-than-expected results could refuel Wall Street’s latest rally while any disappointment, either with the reported numbers or with its guidance, could trigger a sharp correction.