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28.12.2024 08:21 AM
Wall Street ended lower on Friday, an unexpected end to a shortened trading week. The broad selloff even engulfed tech stocks and other growth favorites that had previously been pulling markets higher.
The Dow Jones Industrial Average has given up its gains, snapping a five-game winning streak. The Dow had its worst 10-day decline since 1974, adding drama to the current swings. Even the biggest names in the S&P 500 were under pressure on Friday, with 45 of the top names ending the day in the red.
The traditional pre-holiday rally in stocks, known as the "Santa Claus rally," is in doubt. The S&P 500 typically gains an average of 1.3% in the last days of December and the first sessions of January, according to Stock Trader's Almanac. This year, however, the market is breaking the mold. The first signs of weakness emerged on Thursday, with the S&P 500 and Nasdaq ending the day with small losses.
Rising U.S. Treasury yields have added to the pressure. The benchmark 10-year yield hit 4.63% on Friday, a seven-month high. High yields are making life difficult for growth-oriented companies, as they make it more expensive to borrow to finance their growth. This has particularly hit the "magnificent seven" tech giants that have been driving the market's growth through 2024.
The current dynamics have investors wondering: is this just short-term profit-taking or the beginning of a deeper downturn? As rising yields and volatility continue to set the tone, traders will have to keep a close eye on market sentiment.
Tesla (TSLA.O) shares were the focus of a sell-off for the second day in a row, losing 5% of their value. Other big players were also under pressure: Nvidia fell 2.1%, while tech giants Alphabet, Amazon and Microsoft lost more than 1.5%. The decline shows that even the strongest companies are not immune to the impact of current market conditions.
Experts attribute this to the rising cost of capital. "Rising interest rates have caused significant changes over the last month. This is forcing investors to rethink their strategies," explains Reynolds of Glenmede. According to him, market participants have begun to ask whether the high valuations of the "magnificent seven" tech giants are justified, or whether they should look for better opportunities in other sectors.
On Friday, all 11 major sectors of the S&P 500 ended the day with a decline. Consumer discretionary (.SPLRCD), information technology (.SPLRCT), and communications services (.SPLRCL) were the biggest losers, falling between 1.1% and 1.9%. These sectors had been the leaders in 2024, but the sell-off has curbed their gains.
Despite the negative end to the week, the overall performance over the past five days has remained positive. The S&P 500 rose 0.7%, the Dow Jones gained 0.36%, and the Nasdaq ended the week up 0.75%. These data suggest that the market still has room to grow despite short-term headwinds.
The current situation has analysts and investors wondering: is the current decline a temporary setback or the beginning of a deeper trend? With interest rates rising and the cost of capital changing, many will be looking for new entry points and alternative investment avenues.
Amid a broader market decline, some stocks managed to break out of the downward trend thanks to significant news. Shares of home care provider Amedisys (AMED.O), for example, jumped 4.7%, their biggest one-day gain since early July. The optimism was fueled by an announcement that it had extended the closing date for its $3.3 billion merger with UnitedHealth (UNH.N).
Potato producer Lamb Weston was also among the day's winners, rising 2.6%. The company said activist investor Jana Partners was actively working with the new management to implement strategic changes that could lead to a significant shakeup of the board. The news buoyed investor interest in improving corporate governance.
The holiday-shortened week was marked by subdued activity on the exchanges. Trading volumes were below the six-month average, a trend that is expected to continue into the first full week of January. The main event in the coming days will be the publication of the December employment report, scheduled for January 10, which could set a new tone for financial markets.
Despite a slight decline on Friday, the dollar ends the year with a gain of almost 7%. This figure was made possible by expectations of stable US economic growth and the new administration's policy initiatives, including tax cuts, deregulation and tariff reduction. These factors are holding back the Fed from more aggressive rate cuts, which will likely last until 2025.
The market continues to balance between positive news from individual companies and general uncertainty. Market participants will closely monitor macroeconomic data and the actions of major corporations to assess the prospects for the beginning of the new year.
On Friday, the three leading Wall Street indices showed a noticeable decline. The S&P 500 (.SPX) lost 1.11%, the Nasdaq Composite (.IXIC) fell by 1.49%, and the Dow Jones Industrial Average (.DJI) fell by 0.77%. Despite this, all indices ended the week in the green. S&P 500 up 0.67%, Nasdaq up 0.75%, Dow up 0.36%.
The year is ending with impressive numbers: the Dow has gained 14% for the year, the S&P 500 has gained 25%, and the tech-heavy Nasdaq has gained 31%. These numbers highlight the strength of the markets, even despite short-term corrections.
Steve Sosnick, chief market strategist at Interactive Brokers, suggests that Friday's drop may be related to pension fund portfolio rebalancing. "Funds may sell stocks and move into bonds before the end of the year. This explains the sudden sell-off without obvious news. And given the large weighting of tech giants in the indices, they are the ones under the most pressure," Sosnick said.
On the international stage, broad indices are also showing positive results. The MSCI Global Index (.MIWO00000PUS) lost 0.59% on Friday, but has gained 1.45% for the week. In Asia, the MSCI Asia-Pacific Index fell 0.1%, but still ended the week with a gain of 1.5%. Japan's Nikkei (.N225) has gained 1.8% for the week, while Europe's Stoxx 600 (.STOXX) has gained 0.67% on Friday and has added about 1% for the seven days.
While Friday's decline in the U.S. has dampened investor sentiment, the overall year and week results remain upbeat. The major indices continue to reflect the stock market's strength, while macroeconomic factors and international trends provide grounds for cautious optimism.
The dollar index, which measures the dollar against six major currencies, was down 0.06% on Friday but has gained 0.2% for the week. The dollar has gained an impressive 6.6% so far in 2024, reflecting its continued dominance amid global economic challenges.
The dollar/yen pair was down 0.06%, remaining close to the 5.5-month high hit on Tuesday. The dollar has strengthened 5.4% against the yen this month and is up almost 12% year-to-date. The weakness in the Japanese currency is linked to the Bank of Japan's policy of holding off on raising rates as it waits for greater clarity on the global economic environment.
The euro, by contrast, was steady, although not far from the two-year low hit in November. Since the beginning of the year, the eurozone currency has lost 5.6% amid a weakening economy and high inflation risks.
BoJ Governor Kazuo Ueda stressed that US policy, including tariffs and trade measures, is a concern. The central bank decided not to rush to raise rates to assess the impact of new initiatives on the global economy. This decision puts pressure on the yen, increasing its vulnerability to stronger currencies.
Federal Reserve Chairman Jerome Powell confirmed that further rate cuts will be carried out with caution. After the expected reduction of a quarter percentage point, the Fed will continue to carefully assess economic data to avoid unnecessary risk.
Donald Trump's economic policy, including deregulation, tax cuts, tariff increases and a strict immigration policy, is becoming a double-action factor. Experts believe that it can stimulate economic growth, but at the same time increases inflation risks and exacerbates tensions in global markets.
The dynamics of the dollar and key world currencies underscore the complexity of the global economic situation. Political and economic decisions by major powers will remain in the spotlight for investors, creating volatility and opening up new opportunities for trading strategies.
Markets are set for the Bank of Japan to maintain loose monetary policy despite mounting pressure on the yen. At the same time, the European Central Bank is expected to continue cutting interest rates. Such a policy is likely to put further pressure on the euro, especially as the eurozone economy slows.
In the US, traders are pricing in a 37 basis point rate cut by 2025, but they do not expect the first real changes to begin until May. At that time, the ECB is expected to cut its deposit rate by one percentage point to 2% in an attempt to support the region's economy. However, such moves do not help strengthen the European currency.
Amid expectations of higher rates, the yield on the 10-year U.S. Treasury note hit its highest since May at 4.641%. It retreated slightly on Friday, but remained at 4.625%. The yield on the two-year Treasury note, which is more sensitive to rate forecasts, fell 0.4 basis points to 4.328%.
These trends weighed on European bond yields. In particular, the yield on the 10-year German bond, the eurozone's key instrument, rose 7.6 basis points to 2.401%. This movement reflects the interconnectedness between the U.S. and European debt markets.
Amid rising bond yields, gold prices fell 0.74%, stopping at $2,615.54 an ounce. However, the precious metal ends the year up about 27%, its strongest annual gain since 2011. Geopolitical risks and inflation expectations have supported interest in gold as a safe haven asset.
Global markets face increased volatility in 2024, driven by geopolitical, economic and monetary developments. Central banks, including the Fed, the Bank of Japan and the ECB, remain key players influencing investor sentiment. Looking ahead to 2025, market participants will be looking for stability in yield and asset price dynamics, focusing on long-term signals from regulators.
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*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
