U.S. Stock Market Faces Downturn as Profit-Taking Looms
On Monday, the U.S. stock markets experienced a significant decline as investors began to take profits at the close of a strong 2024. Factors such as increased stock valuations following a remarkable bull run over the past two years, rising treasury yields, uncertainties surrounding Trump’s economic policies, the Federal Reserve’s interest rate decisions, and ongoing geopolitical tensions weighed heavily on market sentiment. All three major stock indexes ended the day lower.
Market Performance Overview
The Dow Jones Industrial Average (DJI) dropped 1% or 418.48 points, ending at 42,573.73 after a turbulent trading session. This marked the index’s seventh consecutive day of losses, with an intraday low reflecting a drop of 728.78 points. Only 2 of the 30 components managed to finish positively, leaving 28 in the red.
The Nasdaq Composite closed at 19,486.78, a decrease of 1.2% or 235.25 points, largely driven by underperformance in leading technology stocks. Similarly, the S&P 500 fell by 1.1%, finishing at 5,906.94, with all 11 sectors ending the day in negative territory.
Specifically, the Consumer Discretionary Select Sector SPDR (XLY), Technology Select Sector SPDR (XLK), Health Care Select Sector SPDR (XLV), and Materials Sector SPDR (XLB) faced declines of 1.6%, 1.3%, 1.2%, and 1.3%, respectively.
The CBOE Volatility Index (VIX), a measure of market risk, rose by 9.1% to 17.40. Overall, 14.48 billion shares changed hands on Monday, which is below the 20-session average of 14.75 billion. Declining stocks outnumbered advancing ones on the NYSE at a ratio of 1.81-to-1, while the Nasdaq saw a decline ratio of 1.72-to-1.
Uncertainty Surrounds Trump’s Policies
Investors are grappling with uncertainty over former President Donald Trump’s economic agenda. While policies such as lowering corporate taxes, deregulation, and tariffs on imports have the potential to stimulate economic growth, they may also contribute to higher inflation, complicating the Federal Reserve’s goal of achieving stable economic growth.
Fed Interest Rate Cuts and Economic Outlook
The market’s outlook on the Federal Reserve’s potential interest rate cuts in 2025 remains uncertain. The Fed has decreased the benchmark interest rate by 1% in its last three meetings this year. Currently, the federal funds rate sits between 4.25% and 4.5%. The latest “dot-plot” indicated only two 25 basis point cuts for 2025, a reduction from earlier expectations of four cuts.
Geopolitical Tensions Impact Investor Sentiment
Ongoing geopolitical conflicts, including the Russia-Ukraine war and tensions involving Israel, Hamas, and other Middle Eastern nations, add further stress to investors. Political instability in regions like Syria and Bangladesh only intensifies concerns.
Concerns Over U.S. Stock Valuations
Investors are increasingly worried about overvaluation in U.S. stocks, especially the so-called “magnificent seven.” Notably, shares of Tesla Inc. (TSLA), Meta Platforms Inc. (META), and Apple Inc. (AAPL) fell 3.3%, 1.4%, and 1.3%, respectively. Tesla maintains a Zacks Rank #2 (Buy).
Positive Economic Data Amidst Market Struggles
On a brighter note, the National Association of REALTORS revealed that pending home sales rose by 2.2% in November, marking the fourth consecutive month of increases and reaching their highest level since February 2023. This result surpassed the consensus estimate of 0.7%, although the previous month’s data was revised down from 2% to 1.8%.
Only $1 to See All Zacks’ Buys and Sells
We’re not kidding.
Several years ago, we surprised our members with the opportunity to access all our picks for just $1 for 30 days. No further obligation.
Many took advantage, while others hesitated, questioning the offer. We aim for you to discover our portfolio services, such as Surprise Trader, Stocks Under $10, Technology Innovators, and more, which resulted in 228 positions yielding double- and triple-digit gains in 2023 alone.
Want the latest recommendations from Zacks Investment Research? Download 5 Stocks Set to Double for free today.
Apple Inc. (AAPL) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
To read this article on Zacks.com, click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
