The S&P 500 Trump-election rally has vanished, as Friday's sell-off on the December jobs report and a jump in inflation expectations extends into Monday. Markets are suddenly seeing just a slim chance that the Federal Reserve will cut its key rate below 4% this year, bitcoin is sliding near a two-month low, and MicroStrategy (MSTR) is leading the S&P 500 lower in early stock market action.

"Investors celebrated the national election results, expecting that President Trump and a sympathetic Congress would be growth- and market-friendly," wrote Doug Peta, chief U.S. investment strategist at BCA Research, in a Monday report. "The backdrop is far less forgiving than it was eight years ago, however, following five years of gaping budget deficits and a two-year stretch of 70s-style inflation."

Jobs Report, Inflation Data

At the moment, markets are shooting first, then asking questions. While Friday's reported 256,000 payroll gain blew away forecasts, it was hardly a blowout report. Consider this: The average monthly payroll gain over the past three months was respectable, but not especially strong: 170,000 overall, including 138,000 in the private sector. In fact, after minor revisions, that's exactly where the three-month average stood after November's jobs report.

In other words, that points to stability, not improvement. Despite a jump in business sentiment following Donald Trump's election victory, that hasn't yet translated into stronger hiring. Plus, the tighter financial conditions, including a jump in the 10-year Treasury yield, and uncertainty over tariffs and stepped-up deportations could weigh on growth in the near term.

A couple of other data points also ruffled markets last week. On Friday, the University of Michigan consumer sentiment survey showed that five-year inflation expectations rose from 3% to 3.3%, the highest since 2008. If sustained, the Fed might grow concerned that inflation expectations are becoming unanchored.

Also, the Institute for Supply Management's gauge of service-sector prices jumped 6.2 points to 64.4, the highest since February 2023. "This index has typically provided a reliable lead on underlying services inflation over the past decade or two," wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. However, he cautioned putting much weight on one month's data point because index readings can be volatile.

This week's producer price index and consumer price index, out Tuesday and Wednesday at 8:30 a.m., will carry more weight than survey-based data.

Fed Rate-Cut Odds

As of Monday morning, markets aren't expecting the next rate cut before the June 18 Fed meeting, according to CME Group's FedWatch tool. Even then, the odds are pretty close: 55.5%-44.5%. Markets see almost no chance of a rate cut at the Jan. 29 meeting, a one-in-four chance on March 19 and a one-in-three chance on May 7.

For all of 2025, markets are betting on just one quarter-point rate cut, with just 32% odds of a second cut.

Bitcoin Price

The price of bitcoin fell to $91,540 Monday, down 5% from its 24-hour high. Earlier Monday, bitcoin nearly hit $90,000.

Bitcoin's price peaked just above $108,000 in mid-December after President-elect Trump signaled that he intends to follow through on his campaign plan to create a strategic bitcoin reserve. However, it's not entirely clear that the Trump administration can set in motion government purchases of bitcoin without an appropriation from Congress.

MicroStrategy, which was added to the S&P 500 last month as Bitcoin was near a peak, tumbled 5% in Monday trade.

S&P 500 Trump Rally Fizzles

The S&P 500 fell 0.7% Monday morning, briefly undercutting the S&P 500 Election Day close of 5,783. Nvidia (NVDA) tumbled nearly 4% on new AI chip export curbs and reports of canceled Blackwell chip orders.

The Trump rally peaked on Dec. 6, with the S&P 500 5.3% above its Election Day close.

Market strategists generally expected a Trump rally following the election, figuring that Wall Street would focus on the positive of tax cuts and deregulation until plans for tariffs and deportations were clarified. However, markets may be doing roughly the opposite, focusing on the inflation impact of tariffs the potential deficit impact of tax cuts.

The S&P 500 lost 1.9% last week, closing 2.4% below its 50-day moving average.

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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