US Stocks Hit Hard by Late-Week Decline in Tech Giants

The stock market faced a downturn as the largest tech companies experienced significant selling pressure in the last few days of trading, impacting overall stock indexes.

Market Overview

In a week marked by low trading volumes, the S&P 500 fell by 1.1% and the Nasdaq 100 declined by 1.4%. The technology giants, referred to as the "Magnificent Seven," were most affected, after a year of impressive performance where they accounted for over half of the S&P 500’s gains in 2024.

Kenny Polcari from SlateStone Wealth mentioned the strong performance of the market this year, suggesting that major investment decisions might be best left for after the holidays, given the expected light trading volumes. Steve Sosnick at Interactive Brokers noted an increase in inquiries from large accounts needing to rebalance their portfolios before the year's end.

Performance Metrics

As the S&P 500 and Nasdaq 100 recorded losses, the Dow Jones Industrial Average also dipped by 0.8%. The index tracking the "Magnificent Seven" experienced a more pronounced decline of 2%, with notable falls in stocks like Tesla Inc. and Nvidia Corp. The Russell 2000 index, which represents small-cap stocks, dropped by 1.6%.

During this trading week, key economic indicators showed a mild increase in the yield on 10-year Treasuries by four basis points, climbing to 4.62%. In currency exchange, the Bloomberg Dollar Spot Index remained mostly unchanged.

Trends in Investment Funds

Latest data suggested a weak week for investment funds tied to themes that have driven the market, with record-high redemptions from cryptocurrency funds and prolonged outflows from technology sector funds.

Looking ahead, analysts suggest that while the current stock rally has set high expectations, particularly for tech stocks, it may present challenges for future gains. A recent analysis predicts a nearly 30% earnings growth for the tech sector in 2025, but the high market-cap share of tech in the S&P 500 reflects an expectation closer to 40%.

Investment strategists have indicated that excessive valuations in leading companies may leave them vulnerable if earnings do not meet these expectations. In light of this, there is a need for diversification in portfolios to mitigate risks.

Outlook for Investors

John Belton from Gabelli Funds contended that while high valuations could limit near-term opportunities, the growth outlook, especially in artificial intelligence (AI), could justify current valuations. Some strategists also pointed out the challenges of a market in its late stage, suggesting a more cautious risk posture going forward.

Overall, the sentiment among individual investors has shifted, with reduced optimism following this week's stock dip. However, this change has not yet impacted the views of financial advisors, who may react strongly to any negative news or shifts in Federal Reserve policy.

stocks, market, technology