A U.S. stock rally fueled by Donald Trump’s election victory is stumbling, as investors contend with everything from renewed inflation worries to uncertainty over the impact of the president-elect’s policies.
Bets that some of Trump’s policies could spur a rebound in inflation and cloud the picture for further interest rate cuts helped push the benchmark U.S. 10-year yield to its highest level in more than five months on Friday, a potentially unwelcome development for stocks. The benchmark 10-year yield - which typically moves with interest rate expectations - has surged about 90 basis points since mid-September as investors curtailed bets on how deeply the Federal Reserve will cut borrowing costs in the face of robust growth that could stoke an inflationary rebound.
As yields have risen, the relative attractiveness of equities compared with U.S. government bonds, which are seen as risk-free if held to term, has dimmed by some measures. Nevertheless, the uncertainty has pushed some investors to “sell first, ask questions later,” said King Lip, chief strategist at BakerAvenue Wealth Management.