Goodbye Santa Rally?
US stocks fell on Friday as investor sentiment deteriorated. The Dow Jones Industrial Average fell more than 300 points mid-morning, while the Nasdaq Composite Index, which includes more tech-focused stocks, slipped nearly 2%.
“Initially the market was very focused on the positives of the Trump election, but I think there is more uncertainty around tariffs and immigration next year,” said Keith Lerner, co-chief investment officer and chief market strategist at Truist . “You see increasing inflation. The age of 10 is creeping up on you every day.”
The 10-year U.S. Treasury note was trading at about 4.58% on Friday morning, after rising about 30 basis points last 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 reduce corporate profit margins and cause stocks to lose value.
“The strong economy, combined with the possibility of lower taxes, higher tariffs and immigration restrictions, has increased the risk that the Fed will have to raise interest rates in 2025,” Torsten Slok, chief economist at Apollo Global Management, wrote in a note to clients Mid-December.
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“We see a 40 percent chance that the Fed will raise rates in 2025,” Slok added. “For investors, things are starting to look similar to 2022 – too high inflation, rising interest rates and falling stock prices.”
More: The Fed is cutting interest rates by another quarter point, but only foresees two rate cuts in 2025
Most of Friday’s decline came from technology-focused stocks. Shares of NVIDIA Corporation fell nearly 3% in mid-morning trading, while shares of Amazon.com Inc. and Microsoft Corporation each fell more than 2%.
Despite Friday’s declines, it’s been a blockbuster year for stocks. The S&P 500 has gained more than 25%, while the Nasdaq has gained 31%. Despite some fluctuations in recent weeks, NVIDIA shares are still up nearly 180% for the year.
Technology companies are often seen as more sensitive to interest rate hikes because they have traditionally spent more to grow their businesses than companies in more mature industries. Of the 11 sectors that make up the broad S&P 500 index, the technology sector fell the most on Friday, while real estate, which gains value as interest rates rise, was flat.
Beneath the surface, there is a “risk-off tone,” Lerner told USA TODAY, suggesting that investors who had embraced more speculative investments may be reconsidering that strategy.
