Stock market's Dow Jones plummets significantly as financial sector prepares for prospect of Trump presidency
Wall Street has been feeling anxious about the potential of ex-President Donald Trump winning the election, a scenario that financial institutions have been preparing for more intensely. Even though polls are still at a standstill, Trump's chances have been improving in prediction markets since the beginning of this month.
According to Steven Ricchiuto, chief US economist at Mizuho Securities, this common sense notion stems from Trump's proposal for increasing import tariffs to stimulate domestic manufacturing. These tariffs are believed to instantly increase the cost of consumer goods and subsequently reverse the deflation of goods which has been instrumental in influencing inflation towards the Fed's 2% goal.
If implemented, Trump's policy initiatives are predicted to induce the government to borrow a substantial amount more than Vice President Kamala Harris' policies. This would make investing in government-issued securities riskier, forcing investors to demand higher interest rates as compensation for holding US debt.
Treasury yields have seen a consistent rise, briefly pushing the 10-year note up to 4.25%, its peak level since July. This escalation in yields has in turn intensified pressure on equities.
The oscillation in bond yields has made stock investors nervy. The tech-dominated Nasdaq Composite took the biggest hit, dropping 1.8%; while the S&P 500 and Dow both fell 1.1%. This equates to a decrease of 450 points for the Dow. For a brief period Wednesday, the Dow was down by over 600 points, marking the third day in a row of losses for US markets. All three indexes ended the day with only minor losses later Wednesday afternoon.
José Torres, senior economist at Interactive Brokers, commented, "The equity market is quite fragile due to the challenges that are gathering momentum near the horizon." He added that expectations for improved corporate earnings are significant, emphasizing the significance of forward guidance rather than past performance.
The selloff predominantly impacted the tech sector, with Nvidia dropping 3.6% and Apple losing 3% ahead of their earnings releases next week. Investors are keen on these results to ascertain whether substantial investments in artificial intelligence have led to enhanced financial growth.
McDonald's was another company hit by the selloff, with its stock down by 4% Wednesday afternoon. Shares plunged 7% following an E. coli outbreak linked to Quarter Pounders in the western US, resulting in one fatality and 10 hospitalizations. Shares of Dow component Boeing also declined after the aircraft manufacturer reported heavy losses in Q3, with new CEO Kelly Ortberg acknowledging that "it will take time to restore Boeing to its former glory."
Investors are also grappling with conflicting signals regarding the Federal Reserve's future actions. Strong economic data has led traders to speculate whether the central bank could maintain higher rates for longer than anticipated.
According to Torres, the current market climate suggests ongoing volatility, warning of the potential for further yield curve steepening and heightened market turbulence ahead.
This report is still being updated.
CNN's Elisabeth Buchwald contributed to this article.
The economic uncertainty surrounding a potential Trump victory has led businesses to reassess their strategies. This is particularly true for industries heavily reliant on international trade, as Trump's proposed import tariffs could increase their costs.
The potential escalation in Treasury yields, driven by the expectation of increased government borrowing under a Trump presidency, is causing concern among investors in the business sector.
