(Bloomberg) — Sales at the world's biggest technology companies have hit stocks during the final stretch of a stellar year.
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In another session of thin trading volume – which tends to amplify moves – the S&P 500 lost 1.3% and the Nasdaq 100 slipped 1.5%. All major industries fell, with Tesla Inc. and Nvidia Corp. leading losses in megacaps. That's after a surge that saw the cohort of tech giants known as the “Magnificent Seven” account for more than half the performance of the US equity benchmark in 2024.
“I think Santa has already come, but that's me. Have you seen the performance this year?” Kenny Polcari told SlateStone Wealth. “It's Friday, next week is another holiday-shortened week, numbers will be light, moves will be exaggerated. Don't make any big investment decisions this week.”
For Steve Sosnick at Interactive Brokers, while today is shaping up to be a quiet session for the holiday season, he has been fielding more inquiries than expected.
“The best I can find is that there are large accounts, pension funds etc., that need their payments rebalanced before the end of the year,” he said.
Sosnick also noted that intraday trading suggested a big seller was active, with two consecutive “buy-the-dip” attempts in the S&P 500 failing at the 5,970 level.
“That's the kind of action that happens when a rally attempt is pushed, causing the short-term speculators to switch from buyers to sellers,” he concluded.
The S&P 500 and the Nasdaq 100 both posted gains this week. The Dow Jones Industrial Average slipped 0.9%. The Bloomberg gauge of the “Magnificent Seven” shares sank 2.1%. The Russell 2000 small-cap index fell 1.9%.
The yield on 10-year Treasuries rose three basis points to 4.61%. The Bloomberg Dollar Spot Index crashed.
Funds linked to several of the main themes that have driven markets and money flows over the past three years ended the week ending December 25, according to data compiled by EPFR.
Redemptions from cryptocurrency funds hit a record high while technology sector funds extended their longest outflow streak since the first week of 2023, the firm said.
This year's rally in US equities has driven expectations for stocks so high that it may be the biggest obstacle to further gains in the new year. And the bar is even higher for tech stocks, given their massive rally this year.
A recent Bloomberg Intelligence analysis found that analysts estimate nearly 30% earnings growth for the sector next year, but the technology market cap share of the S&P 500 index suggests that growth expectations closer to 40% could be embedded in the stocks .
“The market's biggest companies and other connected technology darlings still command significant premiums,” Jason Pride and Michael Reynolds told Glenmede. “Excessive valuations leave room for downside if earnings fail to meet expectations. Market concentration should reward efforts to diversify portfolios on a regular basis.”
“Valuation alone is not a reason to be bearish, but it affects risk/reward in the near term,” John Belton told Gabelli Funds. “Bottom line: a bit more cautious on stocks for the next year compared to where we've been positioned. Credible reasons for excitement, balanced by high valuations and a host of unknowns.”
Yet Belton still thinks the “Magnificent Seven” looks well positioned amid strong earnings growth, resilient earnings drivers, key AI beneficiaries, potential deregulation benefits.
“I remain bullish on the tech sector, despite concerns about high valuations,” David Miller told Catalyst Funds. “The growth potential, especially driven by AI, justifies these valuations, as it significantly improves productivity for companies.”
“Large cap valuations seem expensive, and the US economy is in late stage. As a result, the road ahead may be shorter than the age of the bull market alone would suggest,” Pride and Reynolds told Glenmede.
Although the current advance from 2022 to the present appeared quite remarkable, it was the second shortest bull market, with the second smallest cumulative gains, since 1928, they noted. Historically, late-cycle bull markets with premium valuations at the two-year mark lasted an average of 38 months.
“The combination of a young bull market, late-cycle expansion and premium valuations justifies a risk-neutral posture given the relatively balanced implications for risk assets,” Glenmede strategists concluded.
For Tom Essaye at The Sevens Report, sentiment is no longer euphoric and markets will start the year with regular investors much more balanced in outlook – and that would be “a good thing as it reduces the risk of air pockets,” but councilors have largely ignored it. the recent volatility.
“It's fair to say that this recent fall in stocks has taken the euphoria out of individual investors, but it hasn't dampened adviser sentiment,” he said. “And if we get bad political news or Fed officials point to a 'pause' in rate cuts, that will likely cause more short, sharp drops.”
Some of the main movements in markets:
Stocks
The S&P 500 fell 1.3% as of 1:53 pm New York time
The Nasdaq 100 fell 1.5%
Dow Jones Industrial Average fell 0.9%
MSCI World Index fell 0.7%
Bloomberg Magnificent 7 Total Return Index fell 2.1%
Russell 2000 Index fell 1.9%
Currency
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0426
The British pound rose 0.3% to $1.2568
The Japanese yen was little changed at 157.84 per dollar
Crypto currency
Bitcoin fell 1.3% to $94,458.76
Ether rose 0.6% to $3,353.68
Bonds
The yield on 10-year Treasuries increased three basis points to 4.61%
Germany's 10-year yield rose seven basis points to 2.40%
Britain's 10-year yield increased six basis points to 4.63%
Goods
West Texas Intermediate crude rose 1.5% to $70.66 a barrel
Spot gold fell 0.6% to $2,618.74 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from Robert Brand, Julien Ponthus and Chiranjivi Chakraborty.
