Back to Election Day: The 'Trump rally' in U.S. stocks is almost gone...

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From Trump's election victory to his impending inauguration, Wall Street might be getting an unwanted "round-trip ticket"...
Although the S&P 500 Index opened lower but closed higher on Monday, eking out a modest gain of 0.16%, the intraday action still left many traders feeling "uneasy"—the S&P 500 briefly fell below its closing level on November 5 (U.S. Election Day), signaling that the trading frenzy sparked by the "Trump trade" post-election has nearly evaporated.
The benchmark index initially dropped to a low of 5,773.31 points overnight but erased all losses by the close, inching up to 5,836.22 points. Before the election results were finalized on November 5, the S&P 500 had closed at 5,782.76 points. On November 6, after Trump declared victory, the S&P 500 surged 2.5%, marking its best post-election performance. Over the next month, the index continued to climb, eventually hitting a record high of 6,099.97 points on December 6.
However, compared to its all-time high, the S&P 500 has now fallen more than 4%. The sell-off in equities has coincided with a sharp and sustained rise in U.S. Treasury yields, as growing concerns about stubborn U.S. inflation suggest the Federal Reserve may have to scale back its rate-cut plans this year. Last Friday's unexpectedly strong jobs data only amplified these worries. Against this backdrop, more investors are beginning to question whether stocks are overvalued.
In fact, the current state of the bond market is enough to unsettle equity investors. The 20-year Treasury yield has consistently exceeded 5%, and the 30-year yield breached this key level last Friday before dipping slightly below it. Now, the policy-sensitive 10-year yield is also trending in that direction, repeatedly hitting its highest levels since late 2023.
Rising Treasury yields increase borrowing costs across the economy and boost the risk-free return investors can earn by holding Treasuries to maturity, putting pressure on stocks. As this safe return climbs, riskier assets like equities may appear increasingly expensive.
Amid the relentless rise in Treasury yields, it’s hard to ignore the simultaneous uptick in stock market volatility—the Cboe Volatility Index (VIX) has recently hovered around 20, a level that typically signals trader anxiety. Thus, despite encouraging economic data and Wall Street’s initial positive reaction to Trump’s victory, U.S. stocks have struggled over the past month.
Michael O’Rourke, chief market strategist at JonesTrading, noted, "This is a case of high expectations colliding with reality," pointing out that translating campaign promises into policy is a daunting process. Additionally, more people may now realize that tariffs will be a cornerstone of the new administration’s policies—a prospect investors generally dislike, as tariffs tend to drag on economic growth.
"The honeymoon may be over," O’Rourke added.

A starkly different market environment
One thing is clear: the stock market landscape as Trump enters the White House is vastly different from 2017.
First, valuations back then showed little sign of excess, whereas now they’re at precarious levels. After two consecutive years of gains exceeding 20%, the S&P 500 has rallied more than 50% since the end of 2022. Last year alone, the index set over 50 record highs. In contrast, during Trump’s first term, the S&P 500 rose just 9.5% in 2016 and only 8.5% in the two prior years.
Moreover, Treasury yields were much lower then, making equity returns more attractive. When Trump took office on January 20, 2017, the 10-year yield was just 2.47%, peaking at 3.24% during his tenure. Today, it’s nearing 4.8%, and the Fed sounds reluctant to cut rates aggressively.
The initial enthusiasm around Trump’s agenda has also waned in recent weeks, particularly amid the turmoil over a potential government shutdown and signs of Republican infighting on issues like H-1B visas.
Tom Essaye, founder and president of Sevens Report Research, wrote in a client note that it’s a constant reminder Trump could inject drama into seemingly mundane government functions. "This matters because Republicans hold only slim majorities in the House and Senate, and this theatrics heightens concerns that pro-growth measures could derail due to infighting. The longer this persists, the more markets will doubt whether pro-growth hopes can materialize."
Furthermore, while investors like Trump’s deregulation and tax-cut plans, economists and strategists warn his tariff and immigration proposals could fuel inflation, potentially keeping Fed rates higher for longer than Wall Street expects.
Fed Chair Powell said on November 14 that policymakers saw no signal compelling them to "rush to cut rates." At last month’s press conference, he explicitly stated for the first time that some policymakers had begun factoring potential tariff impacts into their assumptions, though he cautioned it was too early to draw conclusions.
Dennis DeBusschere of 22V Research wrote in a client note last month, "Monetary policy uncertainty is elevated now and may persist for months as the incoming Trump administration implements new fiscal and tariff policies."
Of course, some on Wall Street remain optimistic about Trump’s second term, especially given his tendency to view stock performance as a report card on his presidency. These traders may hope Trump will backtrack if his policies hurt markets.
David Bahnsen, chief investment officer at Bahnsen Group, said in a phone interview last month that on tariffs specifically, markets would bet they’re used as a negotiating tactic rather than a blunt tool. Bahnsen’s view: "If the market reacts poorly, Trump—who loves treating it as a scorecard—will ultimately pivot."