Wall Street slid on Trump tariffs and Fed rate cut uncertainty

·         USD surged, and Gold slipped as Trump may announce a national economic emergency to impose tariffs on all US imports from both allies and adversaries

·         The market is now also adjusting itself for no rate cuts at least before June’25 amid less dovish Fed talks, better than expected economic data, and Trump policy uncertainty

Wall Street Futures stumbled from Santa Claus rally high in the last two weeks on Trump and Fed policy uncertainty and also profit booking after an impressive rally, led by techs on AI optimism. Over the past few days, the U.S. stock market has experienced a downward trend, concluding 2024 on a weaker note. The market's recent downturn may be also attributed to factors such as year-end profit-taking, stretched valuation, and year-end positioning amid thinner liquidity. Although the market is now still expecting three rate cuts of @25 bps cumulating 75 bps in 2025 (March, June, and September), the Fed may cut only two times cumulating 50 bps (June + December).

On early Monday, USD slumped, while Gold, Oil, Wall Street Futures surged after a WAPO report suggested moderate Trump trade war 2.0 as President-elect Trump’s aides (advisors) may be planning to impose additional tariffs only on selected imports critical for national or economic security, not on everything as was campaigned by Trump. However, later Trump rebutted this report, saying his plan for universal tariffs as high as 10%-20% won’t be pared back. As a trade war currency, the hawkish Trump trade war 2.0 policies will be positive for USD and vice versa.

On Monday, soon after the US spot market opened, Gold and oil stumbled, while Wall Street Futures got an additional boost on hopes of an imminent Gaza war ceasefire as US Secretary of State Blinken urged Hamas to make "the final necessary decisions" to reach a Gaza ceasefire and hostage deal before outgoing US President Biden leaves the White House. Blinken voices confidence that a Gaza ceasefire and hostage deal will come together, but possibly after US President Joe Biden leaves office on January 20.

On Monday, techs boosted NQ-100 and also broader SPX-500. The S&P 500 rose 0.5%; while the Nasdaq 100 surged 1.1%, driven by gains in chipmakers amid never-ending AI optimism. The semiconductor sector shined, especially after Nvidia's server partner, Foxconn, reported record revenue and an optimistic sales outlook. Nvidia's shares jumped 3.4%, heading for a record close, while Micron Technology soared 10.4%. Broadcom added 1.6%, contributing to the sector's momentum. But China savvy (MNC) In corporate news, Disney announced plans to merge its Hulu + Live TV business with FuboTV, propelling Fubo shares to skyrocket by over 253%. Dow Jones Industrial Average (DJ-30) edged slightly lower amid hopes & hypes of Trump trade war 2.0 policies less hawkish compared to his 1st term.

On Tuesday, Wall Street Futures slid on fading hopes of the next Fed rate cut in March’25 after hotter-than-expected US JOLTS job openings and Service PMI data coupled with less dovish Fed talks. Also, the latest ISM Service PMI data indicated higher inflationary cost pressure. Among stocks, Nvidia dropped over 5% after reaching record highs, reversing gains spurred by CEO Jensen Huang’s CES keynote on new AI and technology advancements. Also, Tesla slipped 4.7% following a downgrade by Bank of America and Meta shares dropped nearly 2% following CEO Mark Zuckerberg’s announcement to end the company's third-party fact-checking program.

On early Wednesday, US Stock Futures again stumbled on a CNN report indicating President-Elect Trump may be planning to declare a national economic emergency (on national security grounds) to provide legal justification for a large swath of universal tariffs on allies and adversaries. The declaration would allow Trump to construct a new tariff program by using the International Economic Emergency Powers Act, which unilaterally authorizes a president to manage imports during a national emergency.

Bottom line:

Trump 2.0 will ensure the monopoly of the Fed to influence the market in a monotonous way by talking only about rates/monetary policies. As we have seen during Trump 1.0, Trump 2.0 is again influencing market moves with mere tweets/truths or even unconfirmed reports about tariffs and other policies. But Trump has to officially unveil his bellicose policies from tariffs, immigration, and tax/fiscal policies and implement those policies. In 2025-29, we should get a vibrant financial market due to Trump’s bellicose comments/policies and also the Fed’s never-ending jawboning.

Weekly-Technical trading levels: DJ-30, NQ-100, SPX-500, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42850) now has to sustain over 42300-42600 for any rebound to 43300/43500-43800/44000 and further 44400/44600- 45000/45500 and further 45800/46000-46200/46400 and 46800/47000-47500/48000 in the coming days; otherwise sustaining below 42250, DJ-30 may further fall to 41800/41500-40500/40400 in the coming days.

Similarly, NQ-100 Future (21350) has to sustain over 21200 for a recovery to 21500/21700-21800/22250 and further 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 21150-21000, NQ-100 may further fall to 20800/20650-20450/20250 and 20000/19800-19650/19150 in the coming days.

Technically, SPX-500 (CMP: 5950), now has to sustain over 5900 for any further rally to 6000/6050-6100/6150 and 6200/63990-6350/6500 in the coming days; otherwise, sustaining below 5850, SPX-500 may further fall to 5775 and 5675/5600-5550/5500 in the coming days.

Also, technically Gold (CMP: 2630) has to sustain over 2665-2685 for a recovery to 2700-2725 and further 2735/2750-2775/2795 and 2815 in the coming days; otherwise sustaining below 2650-2640 may again fall to 2605/2600 and 2590/2565 and further fall to 2550/2500-2470/2450 in the coming days (depending upon Fed rate cuts, Gaza/Ukraine war trajectory); Gold surged almost 75% in the last one year since Gaza war started back in October’23. Now it may retrace to $2500-2400 levels if Trump indeed can mediate both the Gaza and Ukraine war ceasefire by early 2025.