Goodbye Santa rally?
U.S. stocks fell Friday as investor sentiment turned gloomy. The Dow Jones Industrial Average closed more than 300 points lower, while the Nasdaq Composite Index, which contains more technology-focused stocks, slid 1.5%. Stocks recovered some ground from sharper declines earlier in the day, however.
“Initially the market was so focused on the positives of the Trump election but I think there’s more uncertainty with tariffs and immigration as we look to next year,” said Keith Lerner, co-chief investment officer and chief market strategist for Truist. “You’re seeing some increasing inflation. The 10-year has been creeping up every day.”
The 10-year U.S. Treasury note traded around 4.62% on Friday afternoon, after climbing about 30 basis points over the past month. Bond yields rise when prices fall, and investors often sell Treasury bonds and notes when they expect inflation to rise. Inflation is also likely to eat at company profit margins, making stocks less valuable.
“The strong economy, combined with the potential for lower taxes, higher tariffs, and restrictions on immigration, has increased the risk that the Fed will have to hike rates in 2025,” wrote Apollo Global Management Chief Economist Torsten Slok on a note to clients in mid-December.
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“We see a 40% probability that the Fed will raise interest rates in 2025,” Slok added. “For investors, it is starting to look similar to 2022 – too high inflation, rising interest rates, and falling stock prices.”
More:Fed lowers key interest rate by another quarter point but sees just 2 cuts in 2025
Most of Friday’s decline was centered in technology-focused stocks. Shares of NVIDIA Corporation lost more than 2%, while Amazon.com Inc. and Microsoft Corporation shares each fell nearly 2%.
Despite the declines on Friday, it’s been a blockbuster year for stocks. The S&P 500 has gained more than 25%, while the Nasdaq is up 32%. And NVIDIA shares are still up nearly 180% for the year, even after a few choppy weeks recently.
Tech companies are often seen as being more sensitive to rises in interest rates because they have traditionally spent more on growing their businesses than those in more mature industries. Of the 11 sectors that make up the broad S&P 500 index, tech was one of the big losers, second only to the consumer discretionary sector, which is anchored by Amazon.
There’s a “risk-off tone underneath the surface,” Lerner told USA TODAY, suggesting that investors who had been embracing more speculative investments may be rethinking that strategy.
(This story was updated to add new information.)
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