To The Moon

On Fri, 27 Dec 2024, US stocks ended in the red, closing out a lacklustre week despite a year of historic highs.

Tech and growth stocks dragged Wall Street's main indexes lower on Friday, at the end of an upbeat holiday-shortened week that was driven by expectations around a traditionally strong period for markets.

By the time market closed for the week: (see above)

• DJIA: -0.77% (-333.59 to 42,992.21).

• S&P 500: -1.11% (-66.75 to 5,970.84).

• Nasdaq: -1.49% (-298.33 to 19,722.03).

If we have to look for a silver lining in the midst, it’s the 3 major indexes still posted a positive holiday week. (see above)

• DJIA: +1.65% (+695.95 to 42,992.21).

• S&P 500: +2.21% (+128.84 to 5,970.84).

• Nasdaq: +2.77% (+531.99 to 19,722.03). Strongest weekly performer.

Sectors’ Performances.

All eleven sectors were washed in red.

The 3 worst hit sectors (in descending order) were:

• XLY (Consumer Discretionary) : -1.65%.

• XLK (Technology) : -1.33%.

• XLC (Communication Services) : -0.89%.

Is it a wonder that Technology was one of the big losers, 2nd only to Consumer discretionary sector, that is anchored by Amazon?

The 3 least impacted sectors (in ascending order) were:

• XLE (Energy) : -0.012%.

• XLU (Utilities) : -0.29%.

• XLV (Healthcare): -0.47%.

As we wade into 2025, I wonder if the above will be the trend to watch as we navigate through our investment journey?

Experts’ Views.

Most analysts polled attributed it to market succumbing to profit taking in illiquid markets, heading into the last weekend of 2024.

According to:

(1) Glenmede, Investment strategy VP, Michael Reynolds:

• Friday felt like there is quite a bit of profit-taking across the board.

• It has been more than 2 years into a pretty strong bull market.

• Therefore, it is not a surprise to see investors taking their profits and rebalancing their portfolios ahead of the new 2025.

(2) CFRA Research, Market strategist, Sam Stovall:

• Initially, some investors, anticipating tax benefits, planned to sell investments and defer tax payments until 2026.

• However, concerns about potential profit losses are prompting them to sell earlier.

• The selling pressure is especially evident in the Nasdaq, that has seen significant gains.

• There is growing uncertainty about market performance in early 2025, especially regarding inflation.

• While strong earnings growth is expected due to increased productivity and profit margins, stock valuations are currently significantly higher than the historical average.

(3) Clearbridge Investments, Hd of Economic & Mkt Strategy, Jeff Schulze:

• Christmas rally occurred early this year.

• Friday’s profit-taking was carried out in anticipating of another upcoming shortened holiday week.

• This likely explains the recent market dip, that is “common” when trading volume is low.

• Any significant price drops during this period should be considered potential buying opportunities.

(4) LPL Financial, Chief technical strategist, Adam Turnquist:

• Large technology companies are taking a breather, after driving much of the stock market's recent gains.

• Since election day from 05 November 2024 onwards, (the Mag 7 has contributed to around +85% of S&P 500’s +4% gain).

• Friday saw a broader market selloff taking place, with most stocks declining. as over 90% of S&P 500 constituents are trading in the red.

• Coupled with a low trading volume during this festive occasion, US market relief rally has lost its momentum.

• Important note: The S&P 500’s 50-day moving average is being tested. (see below)

• Failure to hold the level (5,940) would force the index to revisit its November price gap near 5,860.

• (1) Damaged market breadth and (2) the lack of momentum indicators with bullish signals point to elevated near-term downside risk.

Equities Competition.

A rise in Treasury yields this week may have pressured and potentially pushing some trading out of equities.

The yield on the benchmark 10-year Treasury rose more than 4 basis points Friday to 4.631% after the rate hit its highest level since May in the previous session. (see above)

With yields exceeding 4.62% already, they have approached the highest levels seen since the April peaks, that were also the highest in 2024.

Higher yields are also seen as hampering growth stocks, as they raise borrowing costs for business expansion.

Not Spared.

The Magnificent Seven were also caught up in Friday's sell-off. (see above)

For the 2nd successive day:

• $Tesla Motors(TSLA)$ led decliners among the group, dropping -5%.

• $NVIDIA(NVDA)$ shed -2.1%.

• $Alphabet(GOOG)$, $Amazon.com(AMZN)$ and $Microsoft(MSFT)$, all slipped more than -1.5%.

There is selling in Magnificent 7 stocks because they’ve accounted for 100% of all the profits in the S&P 500 in December 2024.

While other companies in the S&P 500 have performed poorly.

However, recent strong performances by the Mega cap stocks seemed to be driven by investors quickly increasing their holdings in them.

The rapid price increase may lead to a period of slower growth or even declines in the prices of the Mag 7 in the coming weeks.

According to California Bank & Trust, Investment MD, Anthony Valeri:

• Looking ahead to 2025, stocks are likely to outperform bonds even after a 2-year strong performance.

• Investors should maintain their equity exposure into the New Year.

• Stocks are still the best investment to hedge against inflation.

Note - Mr Valeri mentioned “into the new year” and not “rest of 2025”.

Guessed nothing is assured with a returning president that’s divisive in nature. There is growing consensus that coming 4 years will be both rocky & challenging.

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