(Bloomberg) — A selloff in the world’s largest technology companies weighed on stocks in 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 1.6% and the Nasdaq 100 fell 2%. All major industries fell, with Tesla Inc. and Nvidia Corp. leading losses in megacaps. This comes after a surge in which the cohort of tech giants dubbed the “Magnificent Seven” accounted for more than half of the performance of the US stock benchmark index in 2024.
“I think Santa already came, but that’s me. Have you seen the performance this year? said Kenny Polcari of SlateStone Wealth. “It’s Friday, next week will be another holiday-shortened week, volumes will be low and movements will be exaggerated. Don’t make any major investment decisions this week.”
For Tom Essaye of The Sevens Report, sentiment is no longer euphoric and markets will start the year with regular investors much more balanced in their outlook, and that would be “a good thing as it reduces the risk of air pockets”, but advisors They have largely ignored the recent volatility.
“It’s fair to say that this recent drop in stocks has taken the euphoria out of individual investors, but it hasn’t made a dent in advisor sentiment,” he said. “And if we get bad political news or if Fed officials point to a ‘pause’ on rate cuts, that will likely lead to more short, sharp declines.”
The S&P 500 and Nasdaq 100 nearly erased this week’s gains. The Dow Jones Industrial Average fell 1.2%. A Bloomberg gauge of “Magnificent Seven” stocks sank 2.7%. The Russell 2000 small-cap index fell 2.2%.
The 10-year Treasury yield rose two basis points to 4.61%. The Bloomberg Dollar Spot Index faltered.
Funds linked to several of the major themes that have driven markets and fund flows over the past three years stumbled during the week ending December 25, according to data compiled by EPFR.
Cryptocurrency fund redemptions hit an all-time high, while technology sector funds extended their longest streak of outflows since the first week of 2023, the firm said.
This year’s rally in U.S. stocks has raised expectations for stocks to such an extent that it may become the biggest obstacle to future gains in the new year. And the bar is even higher for tech stocks, given their huge rally this year.
A Bloomberg Intelligence analysis recently found that analysts are estimating earnings growth of nearly 30% for the sector next year, but technology’s market cap share of the S&P 500 index means growth expectations near At 40% they can be incorporated into the shares.
“The largest companies in the market and other related technology favorites still receive significant awards,” said Glenmede’s Jason Pride and Michael Reynolds. “Excessive valuations leave room for downside if earnings don’t meet expectations. Market concentration should reward efforts to periodically diversify portfolios.”
“Valuation alone is no reason to be bearish, but it affects the risk/reward in the near term,” said John Belton of Gabelli Funds. “Bottom line: a little more cautious with stocks until next year compared to where we have positioned ourselves. Credible reasons for enthusiasm, balanced by lofty valuations and a host of unknowns.”
However, Belton still believes the “Magnificent Seven” appear well positioned amid strong earnings growth, resilient earnings drivers, key beneficiaries of AI, and potential benefits from deregulation.
“I remain bullish on the technology sector, despite concerns about high valuations,” said David Miller of Catalyst Funds. “The growth potential, driven in particular by AI, justifies these valuations, as it significantly improves the productivity of companies.”
“Large cap valuations look expensive and the US economy is in an advanced phase. As a result, the road ahead may be shorter than the age of the bull market would suggest,” Glenmede’s Pride and Reynolds said.
While the current boom from 2022 to the present has seemed quite extraordinary, it has been the second shortest bull market, with the second smallest cumulative gains, since 1928, they noted. Historically, bull markets that were late cycle and had premium valuations at the two-year mark lasted on average 38 months.
“The combination of a young bull market, late-cycle expansion and premium valuations justifies a neutral risk stance given the relatively balanced implications for risk assets,” Glenmede strategists concluded.
Some of the main movements in the markets:
Stocks
The S&P 500 fell 1.6% as of 12:28 p.m. New York time
The Nasdaq 100 fell 2%
The Dow Jones Industrial Average fell 1.2%
The MSCI World index fell 1%
Bloomberg Magnificent 7 Total Return Index fell 2.7%
The Russell 2000 index fell 2.2%
Coins
Bloomberg Dollar Spot Index Little Changed
The euro was little changed at $1.0420
Sterling rose 0.3% to $1.2562.
The Japanese yen rose 0.2% to 157.75 per dollar
Cryptocurrencies
Bitcoin fell 2.3% to $93,499.29
Ether fell 0.4% to $3,319.1.
Captivity
The yield on 10-year Treasury bonds rose two basis points to 4.61%
The yield on the 10-year German bond rose seven basis points to 2.40%
The British 10-year yield rose six basis points to 4.63%
Raw materials
West Texas Intermediate crude rose 0.8% to $70.17 a barrel
Spot gold fell 0.7% to $2,616.36 an ounce.
This story was produced with the help of Bloomberg Automation.
–With the help of Robert Brand, Julien Ponthus and Chiranjivi Chakraborty.
