Tech Titans Tumble Late Week, Shaking Stock Markets: Weekly Recap

(Bloomberg) — As the year draws to a close, a downturn in the world’s leading tech companies has put pressure on stock markets after an otherwise impressive year.

It’s been quite a day with thin trading volumes, often leading to exaggerated market swings. The S&P 500 and the Nasdaq 100 both lost ground; the former slipped by 1.3%, while the latter was down 1.5%. Notably, Tesla and Nvidia were among the biggest losers in the tech sector. These declines come after a remarkable year where tech giants, affectionately named the "Magnificent Seven," have driven more than half of the U.S. market’s performance in 2024.

Kenny Polcari from SlateStone Wealth chimed in with a bit of humor, saying, "I think Santa has already come if you look at this year’s performance. As we approach another holiday week with low trading volumes, it’s wiser not to make bold investment decisions now."

Steve Sosnick at Interactive Brokers mentioned he expected a mellow trading session, yet he’s been swamped with more queries than usual. "It seems large players, like pension funds, need to rebalance their portfolios before year-end," he noted.

He observed intraday activities pointing towards a major seller in play, with the S&P 500’s two "buy-the-dip" attempts struggling at the 5,970 mark. "This sort of action suggests a rally faltering," he explained, leading short-term traders to shift from buying to selling.

This past week, both the S&P 500 and Nasdaq 100 have trimmed their gains. The Dow Jones dropped by 0.9%, while a Bloomberg measure of the “Magnificent Seven” fell 2.1%. Meanwhile, the Russell 2000, tracking smaller companies, decreased by 1.9%.

Furthermore, the 10-year Treasury yield rose slightly to 4.61%, while the Bloomberg Dollar Spot Index was volatile.

EPFR data revealed that funds associated with major market themes have stumbled recently. Notably, there were record withdrawals from cryptocurrency funds, and tech funds continued their longest selling streak since early 2023.

The exhilarating rally in U.S. equities this year has set lofty expectations, which might pose a challenge next year. For tech stocks, in particular, the bar has been raised even higher due to their significant rise. Bloomberg Intelligence pointed out that while analysts forecast the sector’s earnings might grow nearly 30% next year, the stock prices seem to reflect an expectation closer to 40%.

Jason Pride and Michael Reynolds from Glenmede commented, "The top companies and related tech favorites are fetching high premiums. If earnings don’t match expectations, these valuations could spell trouble. Market concentration emphasizes the importance of regularly diversifying portfolios."

John Belton from Gabelli Funds added, "Valuation alone shouldn’t prompt negative views, but it does affect near-term risk and reward. We’re more cautious on stocks heading into next year, balancing optimism with high valuations and uncertainties."

Despite potential concerns over valuations, David Miller from Catalyst Funds remained optimistic about the tech sector. "The growth potential, especially from AI, justifies high valuations due to its productivity boost for businesses," he stated.

Pride and Reynolds from Glenmede remarked, "Current large-cap valuations seem high, and the U.S. economy is in its later stages, hinting that the path forward might be shorter than the bull market’s age suggests."

They highlighted that our current phase, spanning from 2022 to now, has been the second shortest bull market with the second-smallest cumulative gains since 1928. Typically, late-cycle bull markets with premium valuations last around 38 months.

"The ongoing combination of a young bull market, a late-cycle expansion, and premium valuations suggests a neutral risk stance, given the balanced implications for risk assets," the Glenmede strategists concluded.

Tom Essaye of The Sevens Report observed, "Investor sentiment has cooled, which is likely a beneficial change as it reduces sudden risk. However, the recent market volatility hasn’t yet affected advisor sentiment much."

Essaye remarked, "The recent stock dip has dampened individual investor enthusiasm but hasn’t changed advisor sentiment. Unfavorable political news or any suggestion from the Fed to pause rate cuts could trigger quick, sharp market drops."

Here are some of today’s key market movements:

Stocks

As of early afternoon in New York, the S&P 500 declined by 1.3%.
Meanwhile, the Nasdaq 100 saw a 1.5% drop.
The Dow Jones Industrial Average decreased by 0.9%.
The MSCI World Index was down by 0.7%.
Bloomberg’s Magnificent 7 Total Return Index fell by 2.1%.
The Russell 2000 Index declined by 1.9%.

Currencies

The Bloomberg Dollar Spot Index remained mostly steady.
Similarly, the euro stayed largely unchanged at $1.0426.
The British pound edged up by 0.3%, reaching $1.2568.
The Japanese yen remained steady at 157.84 per dollar.

Cryptocurrencies

Bitcoin fell by 1.3%, priced at $94,458.76.
On the other hand, Ether rose 0.6%, reaching $3,353.68.

Bonds

The 10-year Treasury yield went up by three basis points to 4.61%.
Germany’s 10-year yield climbed seven basis points to 2.40%.
Britain’s 10-year yield increased by six basis points to 4.63%.

Commodities

West Texas Intermediate crude went up by 1.5%, trading at $70.66 per barrel.
Spot gold saw a 0.6% decline to $2,618.74 per ounce.

This account was put together with help from Bloomberg Automation, along with contributions from Robert Brand, Julien Ponthus, and Chiranjivi Chakraborty.