Markets took a breather on Tuesday, pulling back from recent highs as investors reassessed the rally that followed Donald Trump’s re-election. The Dow Jones Industrial Average dropped 382 points, ending its streak above the 44,000 mark, while both the S&P 500 and Nasdaq slipped, snapping five-day win streaks. This retreat reflects mounting caution around potential economic headwinds, with key inflation data on the horizon and persisting concerns over rising deficits. Notably, small-cap stocks and sectors tied to the “Trump trade” led the declines, suggesting that investors may be grappling with renewed uncertainty even as the postelection momentum begins to cool.

Key Takeaways:

  • Dow Retreats from Record Highs Amid Market Exhaustion: The Dow Jones Industrial Average fell sharply on Tuesday, dropping 382.15 points, or 0.86%, to close at 43,910.98. This marked a pause in the recent postelection rally, as investor optimism gave way to caution. With upcoming inflation data and ongoing concerns around debt and deficits, analysts suggest that market enthusiasm may be waning.
  • S&P 500 and Nasdaq Break Winning Streaks: The S&P 500 and Nasdaq also experienced losses, snapping their five-day win streaks. The S&P 500 dropped 0.29% to 5,983.99, while the Nasdaq Composite edged down by 0.09% to 19,281.40. Both indices have been lifted recently by gains in technology and growth stocks, yet Tuesday’s losses indicate a shift in sentiment as traders recalibrate their expectations amid concerns over inflation and Federal Reserve policy. 
  • Small-Cap Stocks Face Declines as Uncertainty Grows: Small-cap stocks, which had been seen as a potential beneficiary of pro-growth policies, faced pressure, with the Russell 2000 dipping about 1.8%. The retreat in small-cap stocks indicates that while investors initially anticipated positive outcomes, they are now more wary of the challenges that could emerge, particularly in the face of rising inflation and fiscal deficits.
  • European Markets Log Largest Drop Since August: European equities faced a major sell-off, with the pan-European Stoxx 600 Index plunging 2.01%—its steepest daily decline since August. The FTSE 100 lost 99.42 points, or 1.22%, to close at 8,025.77. France’s CAC 40 Index dropped 2.70%, down 201 points, and Germany’s DAX fell 2.07%, shedding 403 points. Mining stocks led the declines, dropping around 4% due to weaker global demand expectations, while technology was the only sector to show slight gains, edging up 0.04%. Rising inflation in Germany, with a 2.4% increase in October, has added pressure to the European markets, especially as the region grapples with higher interest rates and a mixed economic outlook.
  • Asia-Pacific Markets React with Mixed Sentiment: Major Asia-Pacific markets showed a similar cautionary tone. Hong Kong’s Hang Seng Index declined 2.76%, while South Korea’s Kospi fell 1.94% to 2,482.57, and the Kosdaq dropped 2.51% to 710.52. Japan’s Nikkei 225 slipped 0.4% to 39,376.09, with the Topix closing near the flatline at 2,741.52. Mainland China’s CSI 300 Index fell 1.1% to 4,085.74, and Australia’s S&P/ASX 200 edged down 0.13% to 8,255.6. 
  • Oil Prices Hold Steady Amid Demand Uncertainty: Oil prices steadied after recent declines, with Brent crude edging up by 6 cents to close at $71.89 per barrel, while West Texas Intermediate (WTI) crude rose 8 cents to settle at $68.12. This stabilization follows a broader trend of weakness, as oil prices have dipped over the past two sessions. OPEC recently issued its fourth consecutive downward revision for global demand growth, reflecting concerns over weaker consumption. 
  • Treasury Yields Rise on Inflation Expectations: US Treasury yields moved higher on Tuesday, with the 10-year yield climbing over 11 basis points to 4.426% and the 2-year yield increasing by 8 basis points to 4.342%. The recent postelection rally has intensified focus on upcoming inflation data, as investors look to gauge the Federal Reserve’s next steps. Rising yields reflect concerns about potential inflationary pressures and the likelihood of further rate hikes. 
  • Bitcoin Resumes Climb as It Approaches $90,000 Milestone: Bitcoin gained momentum on Tuesday, rising 2% to close at $89,338.20, with an intraday high of $90,036.17. This upward movement reflects strong bullish sentiment, as Bitcoin has climbed over 33% since Election Day. Investor interest remains high, with many analysts expecting the cryptocurrency to surpass the $100,000 threshold by year-end. 

FX Today:

  • EUR/USD Extends Downtrend After Failing to Hold Above Key Resistance Levels: EUR/USD closed lower on Tuesday at 1.0621, continuing its decline as the pair failed to overcome resistance at the 50-period SMA around 1.0783 earlier in the session. Buyers initially attempted to regain momentum, pushing the price up toward this critical level, but lacking sufficient momentum, the pair reversed and resumed its downtrend. EUR/USD remains below the 100 and 200-period SMAs, reinforcing the bearish outlook. A further drop could see the pair testing support at 1.0600, a potential floor for near-term declines. For the bulls to take control, the pair would need to close back above the 50-period SMA, though resistance near 1.0780 and 1.0799 presents formidable obstacles to any upward movement.
  • GBP/USD Struggles as UK Data Weighs on Sentiment: GBP/USD closed at 1.2744 on Tuesday, dropping nearly 1% as mixed labour market data from the UK fuelled bearish sentiment. The pair attempted an early rally toward the 50-period SMA around 1.2918, but resistance at this level proved too strong, and sellers quickly reasserted control. With the pair trending below the 100 and 200-period SMAs, the outlook remains bearish. Key support lies at 1.2700, which, if broken, could accelerate the downward trend. To shift to a bullish outlook, GBP/USD would need to clear the 50-period SMA, although the 100-period SMA at 1.2946 could cap any potential upside.
  • AUD/USD Rejected at Key Moving Averages as Bears Tighten Control: The Australian Dollar struggled on Tuesday, closing at 0.65354 against the US Dollar after failing to break through resistance at the 50-period SMA near 0.65916. Buyers attempted to push the pair higher early in the session, but bearish pressure intensified, keeping the price below the 100 and 200-period SMAs and reinforcing a negative outlook. If AUD/USD continues its downward trajectory, it may test support around the 0.6500 level, where buying interest could emerge. However, a break below this support would indicate further downside potential, aligning with the broader bearish trend. Any recovery would first need to surpass the 50-period SMA, with the 100 and 200 SMAs posing additional challenges to sustained upward movement.
  • Gold Reverses Gains After Testing Major Moving Averages: Gold ended the session lower at $2,599.81, reversing earlier gains after testing resistance at the 50-period SMA around $2,695 and the 100-period SMA near $2,721. These levels acted as strong barriers, with sellers regaining control and pushing gold back below its 200-period SMA, which had previously offered support around $2,688. The failure to secure higher ground reinforces a bearish outlook for gold in the near term. Should gold continue to decline, support at $2,580 becomes a critical area for buyers to defend. A breach below this level could accelerate the downward trend, while a close back above the 50-period SMA could signal a potential shift towards a bullish stance.

Market Movers:

  • Shopify Surges on Strong Quarterly Performance: Shopify shares soared 21% on Tuesday following the release of its third-quarter results, which showed impressive growth. The e-commerce platform operator reported an operating income of $283 million, significantly surpassing last year’s $122 million for the same period. 
  • Honeywell Rises on Elliott Management Stake: Honeywell shares jumped 4% after Elliott Management disclosed a substantial $5 billion stake in the industrial giant. Elliott recommended that Honeywell consider splitting off its Aerospace and Automation divisions, arguing that separate entities would be better positioned for operational success and long-term shareholder value. 
  • Twilio Upgraded, Shares Gain on AI Potential: Twilio’s stock rose 3% after Wells Fargo upgraded the cloud communications company to “overweight” from “equal weight.” The investment bank highlighted Twilio’s potential as a major player in the emerging AI-powered front office and communications sector, positioning it as a “pick-and-shovel” investment for the next wave of generative AI applications. 
  • IAC Sinks on Potential Angi Spin-Off: Shares of IAC plummeted 13% on Tuesday following the company’s announcement that it is considering a spin-off of Angi, its home improvement marketplace subsidiary. The news also hit Angi’s stock hard, sending it down 26%. Investors reacted negatively to the prospect of a separation, likely due to concerns over Angi’s standalone performance in a challenging market environment. 
  • TreeHouse Foods Drops After Earnings Miss: TreeHouse Foods shares tumbled 14% as the company reported third-quarter results that missed analysts’ estimates. The food processor’s earnings and revenue came in below expectations, and its fourth-quarter revenue and adjusted EBITDA guidance also fell short of forecasts. 
  • Sea Ltd. Surges on Revenue Beat: Sea Ltd. shares jumped 10% on Tuesday following the release of its third-quarter results, which exceeded expectations. The company reported revenue of $4.33 billion, beating the FactSet consensus of $4.09 billion. Sea also posted an adjusted EBITDA of $521.3 million, surpassing the anticipated $490.9 million. 

As the markets closed on Tuesday, investor caution prevailed amid mixed economic signals and a fading postelection rally. The Dow dropped over 350 points, reflecting broader concerns about potential inflation pressures and fiscal challenges ahead. The S&P 500 and Nasdaq also ended their winning streaks, while European and Asia-Pacific markets faced declines, driven by global uncertainties tied to economic policy shifts and weakened demand outlooks. Oil prices steadied despite OPEC’s downward revision for demand, and Bitcoin continued its climb toward record highs, offering a bright spot in an otherwise cautious environment. With inflation data and interest rate expectations in focus, market participants remain vigilant as they navigate an uncertain economic landscape.