ASX Expected to Decline After US Tech Stocks Tumble

Australia’s share market is poised for a lower opening following a sharp sell-off in major technology companies in the United States, which affected stock performance during the final stretch of an otherwise strong year.

Futures indicate a decrease of 0.35 percent, equating to a drop of 29 points, for the local market on Monday morning. This comes as traders assess the recent pullback in the US markets.

US Market Overview

The Nasdaq, among the so-called "Magnificent Seven" companies, was notably hit by the sell-off last week. In a session characterized by low trading volumes, the S&P 500 fell by 1.1 percent, and the Nasdaq 100 decreased by 1.4 percent. All major sectors suffered during Friday’s trading, with technology giants facing the largest losses.

These tech heavyweights had previously driven significant gains in the US market throughout 2024. Observers are noting that the euphoria surrounding the strong performance this year may have led to inflated expectations, especially for technology stocks.

Market Insights

Kenny Polcari, a financial advisor at SlateStone Wealth, remarked, "I think Santa has already come. Have you seen the performance this year?" He cautioned that due to the holiday season, trading volumes are likely to remain low and expected market movements to be exaggerated. He advised against making any major investment decisions during this time.

Steve Sosnick, from Interactive Brokers, noted that despite the holiday lull, he has seen an uptick in inquiries, likely from large accounts and pension funds that need to rebalance their portfolios before the year's end.

Market Trends

The week saw the S&P 500 and the Nasdaq 100 trimming gains made earlier, while the Dow Jones Industrial Average dipped by 0.8 percent on Friday. A measure tracking the "Magnificent Seven" plummeted by 2 percent, heavily weighed down by losses from companies like Tesla and Nvidia. The Russell 2000 index, which comprises smaller companies, also fell, showing a 1.6 percent decrease.

The yield on 10-year Treasury notes climbed by 4 basis points, reaching 4.62 percent, while the Bloomberg Dollar Spot Index fluctuated.

Investor Behavior

Recent data from EPFR has revealed that funds associated with pivotal market themes experienced significant redemptions, particularly in cryptocurrency funds, which saw record-high outflows. Moreover, technology sector funds extended their streak of outflows into the longest period since early 2023.

The rally that characterized US equities this year has set expectations sky-high, which might pose challenges for additional growth in the next year, especially in the technology sector, which has seen substantial gains in 2024.

Future Expectations

A recent analysis from Bloomberg Intelligence highlighted that analysts anticipate nearly 30 percent earnings growth for technology companies in the coming year. However, the market-cap share of these stocks within the S&P 500 suggests that expectations might be closer to 40 percent built into their current valuations.

"The largest companies in the market, particularly those in the technology sector, continue to trade at significant premiums," stated analysts Jason Pride and Michael Reynolds from Glenmede. They cautioned that "excessive valuations may lead to potential downside risks if earnings do not meet these high expectations," emphasizing the importance of diversifying investment portfolios.

ASX, Stocks, Technology