Why Is the Stock Market Coming Down Year end ?
Several factors could explain the recent drop.
GDP Concerns: The U.S. economy grew at 2.8% in the third quarter, missing the 3.1% forecast. U.S. stocks have been buoyed by strong economic growth and low unemployment, despite high interest rates. Yet, fears of a recession linger, and investors are especially sensitive to any slowdown signals. The third-quarter GDP miss reignited these concerns.
Rising Bond Yields Despite Fed Cuts: Bond yields have continued to rise even as the Fed cuts rates.
This can partly be attributed to overly optimistic market expectations for rate cuts, which initially factored in 0.5% reductions but have since been adjusted to a more modest 0.25%. Additionally, the growing U.S. debt burden means higher yields may be needed to offset the perceived risk of holding U.S. debt.
Another factor is election-driven fiscal expectations. Markets are anticipating increased deficits, especially if Trump wins, as his budget proposals could expand the deficit by $7.5 trillion—double that of the Harris proposal. This expectation is driving market adjustments.
Pre-Election Volatility: With the election just days away, market volatility is likely to remain elevated. Historically, the two weeks before polls see heightened uncertainty-driven volatility, which tends to subside post-election.
Finally From a technical standpoint, the S&P 500 remains in an uptrend, holding above its 200-day moving average. This is no cause to abandon the bull run or make premature selling decisions. Rather than predict, it’s best to react to market movements. If the index falls below the moving average, we can reassess again.
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