U.S. stocks plummeted, giving back most of the gains since the U.S. election results were announced. What happened?

On Friday, U.S. stocks fell sharply, giving back most of the gains since the U.S. election results were announced. The Nasdaq 100 index, which is dominated by technology stocks, significantly underperformed the overall market.

On Friday, U.S. economic data, including retail sales, the New York Fed manufacturing index, and the import price index, exceeded expectations, serving as a key trigger for the sharp decline in U.S. stocks:

U.S. retail sales remained robust at the beginning of the fourth quarter, with a month-on-month growth rate of 0.4% in October, compared to an expectation of 0.3%, and the previous value for September was significantly revised up to 0.8%.

The New York Fed manufacturing index for November was 31.2, compared to an expectation of 0 and -11.9 in October.

The import price index for October rose 0.3% month-on-month, against an expectation of a 0.1% decline, with the previous value showing a 0.4% decline. The year-on-year import price index for October increased by 0.8%, compared to an expectation of a 0.3% increase. The import price index excluding gasoline rose 0.2% month-on-month in October, against an expectation of a 0.1% increase, with the previous value showing a 0.2% increase.

Analysis indicates that the latest U.S. retail sales data may signal a robust holiday shopping season. Additionally, the New York Fed manufacturing index far exceeded expectations and the October data. Combined with earlier this week’s higher-than-expected CPI and PPI inflation data, the Federal Reserve is expected to remain cautious in further rate cuts.

After the economic data was released on Friday, the market generally reacted hawkishly. In pre-market trading, U.S. stock index futures and U.S. Treasuries were sold off, while the U.S. dollar index rose. The probability of a 25 basis point rate cut by the Federal Reserve in December dropped to about 55%, down from 60% before the data was released.

After the U.S. market opened, the decline in U.S. stocks widened, facing heavy selling. The trend in U.S. Treasuries reversed, as safe-haven sentiment increased, leading to a surge in U.S. Treasuries. The recently declining Japanese yen rose by 1.5%. Major assets reflected a clear reversal of the Trump trade.

Federal Reserve officials also dampened market enthusiasm.

On Thursday afternoon U.S. time, Federal Reserve Chairman Jerome Powell stated that the U.S. economy is strong and the Federal Reserve does not need to rush to cut rates. Labor market indicators have returned to a more normal level consistent with the Federal Reserve's full employment goal. Inflation will continue to decline towards the 2% target, although there may be occasional bumps. The path of interest rates is not predetermined and depends on data and economic outlook; if the data tells us to slow down rate cuts, then slowing down is the wise choice. Congress generally believes that the independence of the Federal Reserve is very important, and it is too early to draw conclusions about the Trump administration's policies; the Federal Reserve will act cautiously until there is more certainty in policy.

Next year's voting member, Boston Fed President Collins, stated in an interview on Thursday evening that another rate cut in December is certainly possible, but it is not a done deal. From now until the December meeting, we will see more data, and we must continue to weigh what is reasonable.

The next Federal Reserve meeting will be held on December 17-18. Federal Reserve officials will see the inflation and employment data for November before the meeting.

Collins supports the two rate cuts by the Federal Reserve this year. She said, "We will find an appropriate place to move forward in a slower and more cautious manner."

However, Collins also did not use entirely hawkish language. She stated that she has not seen any evidence that inflation is rising due to new momentum in the U.S. economy, which aligns with Powell's expressed views. Both believe that the recent stickiness of inflation is a response or catch-up effect to the significant price increases over the past few years, such as the rising costs of auto insurance reflecting past increases in car prices However, car prices have since fallen back.

Collins believes it is appropriate to continue lowering interest rates to what is known as a neutral stance. It makes no sense to maintain a restrictive policy in the absence of new evidence of price pressures, and the current policy remains restrictive. The old dynamics may gradually resolve unevenly over time.

Nick Timiraos, a well-known financial journalist known as the "New Fed Communicator," wrote that U.S. stocks fell on Friday after a strong retail sales report was released, which may support the view that the U.S. economy is strong and may not need support in the form of interest rate cuts. Additionally, some Federal Reserve officials stated that it is still too early to determine whether the Fed should cut rates at next month's meeting.

Timiraos pointed out that the latest situation highlights the uncertainty expected by investors regarding whether the Fed can continue to cut rates significantly as anticipated, partly due to the U.S. economy continuing to perform well.

Timiraos quoted Jefferies analyst Thomas Simons in a letter to clients after the economic data was released on Friday: "Various comments from Fed officials indicate that they are increasingly concerned that the cooling of inflation is facing obstacles. However, we believe there is not enough evidence to confirm these assumptions before the next meeting."