The market's manic reaction to Donald Trump's return to the White House is starting to subside as investors shift their focus back to economic fundamentals.
DJT tumbled nearly 23% on Thursday, while the Invesco KBW Bank ETF dropped more than 3%, led by a decline in JPMorgan Chase after a Baird rare downgrade. Meanwhile, Tesla shares rose nearly 3% as the tech sector continues to cheer Trump's victory and Fed's rate cuts.
Investors are now positioning themselves for a return to fundamentals, as the previous period's market mania drives stock prices. DJT, Trump's social media platform, reported a $19.2 million loss in the quarter ended September 30, compared to a $26 million loss in the year-earlier period. Sales fell 5.6% to $1.01 million. Despite Trump's alliance with Elon Musk, the president-elect's social platform has not been attractive enough for new users and is struggling to become profitable.
The same story applies to Tesla. The alliance between Trump and Musk is unlikely to drive significant near-term growth in Tesla's vehicle sales and autonomous capabilities. Investors are now waiting to see how Trump will approach the electric vehicle (EV) industry after taking office. The recent rally in Tesla's stock cannot be sustained, as the fundamentals do not support the valuation.
Furthermore, Trump's threats of new tariffs and his proposed massive tax cuts could pose risks to the overall economy. With the S&P 500 approaching the 6,000 mark, investors are seeking more substantial earnings growth and a better balance between valuation and risk.
The move this week in stocks was extreme, and speaks volumes about just how much the market loves having certainty, which we have, now that the presidential election outcome is known, said Clark Geranen, chief market strategist at CalBay Investments.