Stocks Halt Record-Breaking Rally As Tech Gets Hit: Markets Wrap

The recent climb of stocks reached a pause as major technology companies faced significant declines. This shift in momentum came as economic data reinforced the Federal Reserve's cautious approach regarding interest rates.

The S&P 500 index dropped 0.4%, while the Nasdaq 100 fell by 0.9%. The Dow Jones Industrial Average also experienced a slight dip of 0.3%. This downturn ended a seven-day rally that had brought the S&P 500 to new record highs. Within the tech sector, a notable decline occurred in the Bloomberg gauge for the "Magnificent Seven" tech giants, which fell by approximately 1%.

Companies such as Dell Technologies Inc. and HP Inc. suffered considerable losses, both plummeting over 11% after disappointing earnings reports. Additionally, Microsoft Corp. faced scrutiny as the US Federal Trade Commission initiated an antitrust investigation into various aspects of its business, including cloud computing and artificial intelligence.

Jonathan Krinsky from BTIG remarked on the troubles in the tech sector, stating, "It’s beginning to look a lot like ‘tech mess’. The breakdown in tech is concerning as we approach 2025. However, the good news is that there is still rotation into other market sectors, which keeps the broader trade alive."

In a thinly traded market leading up to the Thanksgiving holiday, recent data revealed that the Fed's preferred measure of inflation, the core personal consumption expenditures, climbed 2.8% compared to last October. This data aligns with the views of several Fed officials expressing that there is no immediate urgency to reduce interest rates as long as the labor market remains strong and the US economy continues to thrive.

Bret Kenwell at eToro noted that while inflation is moving in a favorable direction, any lack of further improvements might compel investors to rethink their expectations regarding future rate cuts. Quincy Krosby from LPL Financial added that "the final stretch toward price stability has been hindered by persistent inflation and challenges along the way."

With the S&P 500’s decline of 0.4%, the Nasdaq 100’s drop of 0.9%, and the Dow Jones’ fall of 0.3%, there were notable movements in various market sectors. The yields on 10-year Treasury notes decreased by six basis points to 4.25%, and the Bloomberg Dollar Spot Index fell by 0.7%. In contrast, Bitcoin saw a positive trend, rising significantly.

Looking ahead, JPMorgan Chase & Co., under the new leadership of Dubravko Lakos-Bujas following Marko Kolanovic’s departure earlier this year, has become optimistic about US stocks. Lakos-Bujas set a year-end target of 6,500 for the S&P 500, higher than the average forecast of 6,300 from other strategists. He emphasized that geopolitical uncertainties and evolving policies add complexity to the outlook but believes that potential opportunities will outweigh the risks.

This year, US stocks have shown superior performance compared to international counterparts, fueled by technology shares and the current enthusiasm around artificial intelligence, alongside a resilient economy. The S&P 500 has surged over 25% in 2024, achieving numerous record highs and surpassing the MSCI World Ex-USA Index. Additionally, the valuation gap has grown, with US stocks trading at a remarkable 60% premium compared to international stocks based on projected price-to-earnings ratios.

As the market takes a breather after hitting its 52nd record of the year, historical patterns suggest that the momentum might continue. Since 1950, the S&P 500 has shown an average gain of 1.8% from Thanksgiving to the end of the year, finishing higher about 70% of the time in this period. Adam Turnquist from LPL Financial pointed out that when the index is positive during this timeframe, the average gain rises to 2.1%, enhancing the likelihood of positive outcomes.

Market activity has also seen inflows into US equities increase significantly post-election, reflecting a revival in retail trading, even while European assets are seeing continuous sell-offs. Barclays' Emmanuel Cau highlighted that despite substantial inflows into US equities, hedge funds and systematic strategies have yet to reengage significantly. This suggests that bullish sentiment might not be as robust as appearances indicate.

Corporate Highlights

• Autodesk Inc. is focusing on cost-cutting measures within its sales and marketing teams after pressure from activist investor Starboard Value LP.

• The FTC is investigating whether Uber Technologies Inc. has breached consumer protection laws related to its subscription service.

• Urban Outfitters Inc. exceeded expectations with third-quarter sales, largely driven by its Anthropologie brand.

• Nordstrom Inc. adjusted its annual sales guidance upwards following better-than-expected quarterly growth from its traditional and off-price stores.

• A group of states led by Texas has filed a lawsuit against BlackRock Inc., Vanguard Group Inc., and State Street Corp. for allegedly violating antitrust laws by raising electricity prices.

• Symbotic Inc. cut its first-quarter revenue forecast due to accounting errors, impacting its annual reporting.

• Brookfield Asset Management Ltd. has decided against acquiring Grifols SA, ending extensive negotiations for this takeover.

Key Events This Week

• Eurozone consumer confidence report is scheduled for Thursday.

• US markets will be closed for the Thanksgiving holiday on Thursday.

• Eurozone CPI data will be released on Friday.

• The ECB will publish its consumer expectations survey for October on Friday.

• “Black Friday”, the kickoff for the US holiday shopping season, will also take place.

Overall, market activity has been dynamic, with key changes amid economic updates and corporate performances, guiding investor sentiment as the year progresses.

stocks, technology, economy