SoFi Blog

An unexpected Trump victory in the presidential election introduced a level of volatility not seen since Brexit. The initial selling of US equities in the futures market was quickly reversed but emerging market assets remained depressed as the market tried to guess what Trump trade policies might be.

Equity markets continued to fall last week. The S&P 500 matched its longest losing streak since 1980 with 9 straight losing days as polls indicated a tightening race for president. The search for safety from political uncertainty resulted in rising Treasury prices (and falling yields) throughout the week. While the price action has been painful over the last couple weeks, the economy continues to look good and we still expect a December rate hike from the Federal Reserve.

Interest rates continued to rise last week driven largely by an expected increase in inflation. Third quarter GDP data showed faster growth than expected, but a deeper look suggests caution against overestimating the importance of these numbers. Subpar earnings from several large tech companies and renewed uncertainty surrounding the election put pressure on U.S. equities and offset the good economic news. Falling oil prices and a stronger dollar hurt emerging market returns.

It was a relatively uneventful week as Fed Chair Janet Yellen and Fed Vice Chair Stanley Fischer continued to reiterate the need for a gradual path of rate hikes. Inflation data came roughly in-line with forecasts, which kept ten-year inflation expectations at their highest level since the end of April. Equity and oil prices were up moderately while the euro depreciated against both the dollar and yen.

Stock prices fell last week in the face of rising interest rates and mixed economic data. The 10-year Treasury yield reached its highest level since early June as the market-derived probability of a Fed hike in December rose. Rising yields pushed the dollar higher against most other currencies, hurting returns in international and emerging market equities. We see bond yields leveling out in the coming weeks and remain constructive on U.S. growth.