S&P 500 pulls back from record high, Nasdaq wavers as post-election rally abates

Wall Street’s major stock averages drifted downward Tuesday following strong gains after last week’s U.S. elections, and as investors waited for this week’s updates on October inflation.

The S&P 500 (SP500) -0.2%, after Monday’s close above the 6,000 mark for the first time ever. The Nasdaq Composite (COMP:IND) -0.1%, and the Dow (DJI) -0.4% after rising early in the session. Nine of the 11 sectors in the S&P 500 (SP500) fell, with Materials (XLB) losing the most -1.4%. Information Technology and Consumer Staples (XLP) edged higher.

The indexes have climbed following their surges on Wednesday last week, with nearly 5% jumps for the Dow (DJI) and the S&P 500 (SP500). The so-called Trump Trade was ignited after Donald Trump was re-elected as U.S. president and the Republican Party won control of the Senate. House control is in the balance Tuesday, with 16 races yet to be called, according to the Associated Press.

Bank of America Securities on Tuesday said its clients last week were net buyers of U.S. stocks for the first time in five weeks, at +$2.7B. They were “big buyers” of Financials ETFs and purchased stocks in seven of 11 S&P 500 (SP500) sectors, led by Tech and Health Care.

While Trump begins to fill out his cabinet, traders are also looking ahead to the October consumer price index on Wednesday and the wholesale inflation report on Thursday. Core CPI is expected to come in at 0.3% M/M, and 3.3% Y/Y.

In the fixed-income market on Tuesday, the 10-year Treasury yield (US10Y) rose 6 basis points to 4.38%, and the 2-year yield (US2Y) rose 6 basis points to 4.33%. Yields have pared advances since last week’s push higher after the election.

The U.S. Dollar Index (DXY) rose 0.5% to 106 on Tuesday. A potential rise in inflation has led to some reconsideration of the likelihood of the Fed delivering a December rate cut, fueling the greenback’s advance, Ricardo Evangelista, senior analyst at ActivTrades, said in a note.

“Most analysts still anticipate a 25 basis point cut, with the Fed likely to weigh the cooling job market in its decision,” he said. “However, looking further ahead, the potential for higher tariffs on imports, which could exert upward pressure on inflation, hints at an environment where rates may have to stay ‘higher for longer,’ providing scope for further dollar strengthening, he said.