Stocks Retreat Amid Profit-Taking as Post-Election Rally Cools
Stocks Retreat Amid Profit-Taking as Post-Election Rally Cools
By:JJ Kinahan
Disney surges and Applied Materials slumps as markets eye policy shifts
- Post-election momentum is fading as major indices retreat, with profit-taking driving this week’s market dip.
- Applied Materials and Disney earnings highlight mixed market reactions; policy changes dominate investor focus.
- Rising long-term interest rates signal potential challenges; options expiration adds to short-term market volatility.
After last week’s post-election rally, markets have struggled to maintain momentum, with major indices seeing declines.
Yesterday, the Dow Jones Industrial Average fell 0.5%, while the S&P 500 dropped slightly over 0.5%, erasing one-third of its post-election gains. The Nasdaq Composite extended its losing streak to four days, slipping over 0.5%. The Russell 2000, after a strong rally, dropped 1.3% and has now given back half its Election Day gains.
Emphasis on politics
The market appears to have shifted focus from earnings and economic data to anticipating policy changes from the incoming administration. While individual stocks still react to earnings reports, broader market movements are increasingly driven by expectations of future political and regulatory changes.
In political developments, President-elect Trump announced Robert F. Kennedy Jr. as his nominee for Secretary of Health and Human Services. A polarizing figure and vaccine skeptic, RFK Jr.’s nomination caused pharmaceutical stocks to dip, reflecting concern over potential changes to healthcare policy. This sector could see heightened volatility, presenting opportunities for options traders.
Federal Reserve Chair Jerome Powell spoke yesterday, emphasizing the economy’s strength and suggesting no urgency to cut interest rates. While markets expect a 0.25% rate cut in December, Powell noted that Fed actions primarily influence short-term rates. Meanwhile, long-term rates, such as those on 10- and 30-year bonds, continue to rise, affecting mortgage and car loan costs. This trend could signal future economic challenges.
Quarterly earnings
On the earnings front, Applied Materials (AMAT) reported solid results but provided a cautious outlook, citing weaker demand from China, causing its shares to drop 8.5% in premarket trading. Conversely, Alibaba (BABA) rose 3% premarket after reporting strong earnings, bolstered by growth in its cloud computing and artificial intelligence segments. Disney (DIS), reporting before yesterday’s open, posted its first profitable quarter for direct streaming services and offered an optimistic outlook, pushing its stock up 6.5%. However, challenges persist in Disney’s cable and TV business.
Today is options expiration day, often a catalyst for market volatility. Recent declines appear to be driven by profit-taking instead of a fundamental shift in sentiment, as the VIX remains below its historical average. Unless volatility rises significantly, this week’s market dip may simply represent a pause. Investors are advised to stay focused on their long-term strategies.
JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan
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