Pullback from Election Rally is 'Very Healthy': Strategist

The post-election rally in U.S. stocks has taken a breather, with the S&P 500 giving back roughly one-third of its gains. This pullback, however, is seen as a positive development by some strategists, who view it as a sign of a healthy market. The correction comes after the index hit a record intraday high on Monday, fueled by initial optimism over corporate growth under President-elect Donald Trump.

Sticky inflation and hawkish comments from the Federal Reserve have weighed on sentiment, contributing to the S&P 500's retreat. On Thursday, Fed Chair Jerome Powell stated that the central bank wasn't in a hurry to lower rates, given signs of strength in the US economy. This sentiment was reinforced by data showing firm consumer inflation and subdued initial jobless claims. Deutsche Bank strategists highlighted that inflation remained stubbornly above the Fed's target, making the PCE price gauge due later this month a key indicator to watch. This shift in Fed sentiment contributed to the S&P 500 futures dropping 0.6% on Friday morning, extending Thursday's decline.

The uncertainty surrounding the House elections has also played a role in the market's pullback. Despite Republicans leading in uncalled races, the close margins and potential for a near 50-50 split could hinder Trump's agenda, impacting market sentiment. The S&P 500 gave back roughly one-third of its post-election gains, with futures down 0.6% on Friday (Bloomberg, 2024). This pullback is seen as 'very healthy' by strategists, as it allows for a more balanced market and reduces overvaluation risks.



The recent correction is not unprecedented. In previous post-election rallies, such as those following the 2016 and 2020 elections, markets also experienced corrections before resuming their upward trend. Key factors driving the current market sentiment include inflation data, Fed policy, and the outcome of the House elections, which could impact Trump's ability to implement his agenda.



Investors should view the current pullback as an opportunity rather than a threat. The correction allows for a more balanced perspective on the market and helps to avoid overheating. As the market consolidates, investors can reassess their positions and make strategic adjustments. While risks remain, the strong corporate earnings and technological advancements continue to drive the bull market.

In conclusion, the pullback from the election rally is seen as a 'very healthy' development by strategists. The correction allows for a more balanced market and helps to reduce overvaluation risks. As investors reassess their positions and make strategic adjustments, the market is poised to resume its upward trend, driven by strong corporate earnings and technological advancements.

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