Just ten days into 2025, and after only six trading days in the USA, the S&P 500 Index fell sharply, closing at its lowest since November 5 of last year, erasing all gains since the US elections.

The non-farm payroll report released this Friday dashed hopes for a smooth rise in US stocks this year, as traders took a pessimistic view on the signs of a strengthening US labor market, expecting the report might close the door on the current easing that the Federal Reserve initiated last September, turning good economic news into bad news for the market.

Bloomberg reports that more and more victims of market turbulence are the so-called Trump trades, which are risk assets that were expected to boost the stock market due to anticipated tax cuts and deregulation under Trump's administration.

In reality, investors are facing trades they do not want to see: rising bond yields due to fears that unchecked fiscal spending and trade tariffs will exacerbate inflation. This situation raises concerns about a "double loss" in stocks and bonds. Under a macro-driven investment mechanism, the correlation between stocks and bonds is higher.

Measured by the performance of the world's largest ETF tracking the S&P 500 Index and long-term US Treasury bonds, the total returns of US stocks and bonds have been negative for five consecutive weeks, marking the longest streak of negative returns since September 2023.

Reports indicate that Bill Harnisch, who has spent over fifty years on Wall Street and manages the $1.5 billion hedge fund Peconic Partners, is one of the few who foresaw this situation. Peconic Partners has achieved a 192% ROI for most of the past four years.

Fearing that either a weak or strong economy could pose dangers to bulls, the fund has been reducing leverage, shorting real estate-related stocks, and limiting exposure to the risks posed by technology giants.

Harnisch commented this Friday that we are now facing a "lose-lose situation." He stated that the acceleration of the USA's economic growth might prompt the Fed to take tightening actions again. "We believe this is a very dangerous market."

Priya Misra, a portfolio manager at JPMorgan Asset Management, commented, "The past few weeks may have been a rehearsal for the situation for the entire year. It is not only difficult but also turbulent and chaotic— the Fed remains inactive, and valuations are too high (all assets are priced with optimistic sentiment and a soft landing), compounded by the uncertainty of dual policy."

Dan Suzuki, Deputy Chief Investment Officer at Richard Bernstein Advisors, stated that the stronger than expected economic growth makes investors increasingly worried about its impact on inflation. "The closer we get to no rate cuts and possible rate hikes, and the closer the 10-year (USA) bond yield gets to a new cycle high, the more investors start to worry about what this means for liquidity, growth, and credit issues."

Following the release of the non-farm employment report, this Friday, the consumer survey results published by the University of Michigan triggered new inflation concerns. The survey showed that consumers' long-term inflation expectations for the next five to ten years rose from 3.0% in December to 3.3%, a new high since 2008, exacerbating worries about persistent high inflation; consumers' inflation expectations for the next year rose from 2.8% in January to 3.3%, the highest level in eight months.

The University of Michigan report stated that the inflation expectations data was influenced by expectations of future policies from the Trump administration. The proportion of consumers worried about future tariff increases continues to rise.

Nearly one-third of consumers spontaneously mentioned tariffs, a higher proportion than the 24% in the December survey and less than 2% before the USA election. These consumers generally said that higher tariffs would be passed on to consumers in the form of price increases, raising their inflation expectations.

Joanne Hsu, the head of the consumer survey, stated: "Inflation expectations have risen among multiple groups, both in the short and long term, with particularly strong increases among low-income consumers and independent consumers."
Get a preview of major financial events and discover investment opportunities early! Open Futubull > Market > U.S. Stocks >Financial Calendar/Selected macroeconomic datato seize investment opportunities!

Editor/danial