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27.12.2024 11:27 AM
The Dow Jones Industrial Average (.DJI) ended the trading day slightly higher on Thursday, extending its winning streak to five sessions in a row. The result came amid low trading volumes and rising US Treasury yields, which put pressure on shares of the biggest tech companies.
Unlike the Dow, the Nasdaq Composite (.IXIC) and S&P 500 (.SPX) showed the opposite result, closing slightly lower. This ended a winning streak for the Nasdaq, which has completed four sessions of gains, and broke a three-day streak of positive closes for the S&P 500.
On Thursday, the market was affected by rising U.S. government bond yields. The yield on 10-year Treasuries reached 4.64% in the morning, the highest level since May. However, a successful auction of seven-year notes in the middle of the day helped push this figure down to 4.58% closer to the close.
Rising bond yields traditionally have a negative impact on growth stocks. Rising borrowing costs to finance expansion are creating headwinds for the tech giants known as the "Magnificent Seven." Their weakness has a significant impact on the major market indexes, especially in the absence of other growth drivers.
With markets quiet and choppy, investors are keeping a close eye on bonds, which continue to play a key role in stock performance. While the Dow Jones has shown resilience, the tech sector remains vulnerable to changes in the macroeconomic environment.
The trading day ended mixed for the major U.S. indexes. The S&P 500 (.SPX) was down 2.45 points, or just 0.04%, at 6,037.59. The Nasdaq Composite (.IXIC) also fell 10.77 points, or 0.05%, to 20,020.36. At the same time, the Dow Jones Industrial Average (.DJI) showed a small increase, adding 28.77 points (0.07%) and ending the day at 43325.80.
Among the largest tech companies, the famous "magnificent seven", six ended the day in the red. The leader of the decline was Tesla (TSLA.O), whose shares fell by 1.8%. However, Apple (AAPL.O) managed to stand out from the general flow, adding 0.3%. This growth strengthens the company's position in the race to be the first in the world whose market capitalization reaches an incredible $4 trillion.
This summer, shares of the largest tech companies came under pressure as investors began to look for alternative sectors offering higher returns. However, after the November US elections, interest in these assets returned, allowing the tech giants to outperform the S&P 500 by equal weight.
"When you see market leaders showing breakouts in both absolute and relative terms, it's always a positive sign," said Adam Turnquist, chief technology strategist at LPL Financial. According to him, the current dynamics of the largest tech companies indicate their strong leadership, which is especially important before the end of the year.
Three key indices have repeatedly set record highs in 2023, fueled by hopes for lower interest rates and growing expectations for the development of artificial intelligence, which is expected to become a driver of corporate profits.
The current picture on the market shows mixed sentiment among investors. On the one hand, hopes for the development of advanced technologies and easing monetary policy support optimism. On the other hand, pressure from rising bond yields and the need to reallocate capital are raising questions about the outlook for individual sectors.
US stock markets slowed in the last month of the year after a strong rally in November, driven by positive sentiment around the elections. However, the Federal Reserve's forecast for a more modest rate cut in 2025 has raised new questions among investors and led to a reassessment of the outlook.
Adam Turnquist of LPL Financial noted that the markets have been heavily dependent on the stocks of the largest technology companies in recent weeks, which have acted as the engine of growth. "We are starting to see the first signs of weakening of this dynamic, and for further strengthening of the indices, it is necessary to activate other sectors of the economy," the expert emphasized.
A positive signal for the economy came from the latest data: the number of initial applications for unemployment benefits in the US fell to the lowest level in a month. This indicates the continued stability of the labor market, which, despite the slowdown, continues to remain quite healthy.
December is traditionally considered a seasonally strong period for the markets, known as the "Santa Claus Rally". This phenomenon is associated with a number of factors: low liquidity, investor tax strategies and the redistribution of year-end bonuses.
The S&P 500 has gained an average of 1.3% over the last five trading days of December and the first two days of January since 1969, according to Stock Trader's Almanac. The stats support the optimistic sentiment heading into the end of the year.
Despite lingering challenges such as reliance on big tech stocks and investor caution due to the Fed's policies, markets remain on track to end the year on a positive note. However, sustained gains will require broader support from a wider range of sectors.
Bitcoin's 3.9% decline led crypto-related stocks to fall. Companies such as MicroStrategy (MSTR.O), MARA Holdings (MARA.O) and Coinbase Global (COIN.O) lost between 1.9% and 4.8%. This reflects growing investor nervousness about the volatility of digital assets.
Among the 11 S&P sectors that ended lower, Consumer Discretionary (.SPLRCD) was the hardest hit, falling 0.6%. Energy (.SPNY) also fell slightly (-0.1%), reflecting lower U.S. oil prices.
The 10-year Treasury yield hit its highest in eight months, adding to investor concerns. However, it has since retreated, signaling that the market is gradually adjusting to the current macroeconomic environment.
Investors are already considering key risks that could impact the market in 2025. Among them:
US markets remain in a state of uncertainty, balancing between macroeconomic signals and corporate news. The cryptocurrency sector has faced a new blow, and key indices are showing weak dynamics amid cautious expectations. The outlook for 2025 already raises many questions about the future of the economy, making the coming months critical for investors.
The MSCI World Equity Index (.MIWD00000PUS) added 0.06%, showing strength despite growing geopolitical challenges and economic risks. If the trend continues, 2023 will be the second year in a row when the index shows an impressive annual gain of more than 17%.
Japan's Nikkei (.N225) closed up a solid 1.12%, extending its positive momentum. Meanwhile, the MSCI Asia-Pacific Ex-Japan (.MIAPJ0000PUS) was down slightly (-0.14%) but remains on track for a weekly gain.
European stock markets remained closed for a second day in a row due to the holiday period, while traders in London enjoyed the Boxing Day holiday.
The Federal Reserve's more muted outlook for future rate cuts weighed on the bond market. The yield on the 10-year Treasury note rose to 4.641%, its highest since May, a significant jump from the 4.10% level hit at the start of the month.
Expert David Cardillo commented on this situation, noting:
"We are heading towards a yield level of 4.75%-5.0% on the 10-year note. The main reason for this is the uncertainty in the bond market, while the stock markets are quite optimistic. The hawkish stance of the Fed will probably start to have an impact in the first half of next year."
Global markets are ending the year on a positive note, despite worrying signals from the bond market and persistent geopolitical risks. Stock market optimism clashes with caution among bond investors, which creates intrigue for the beginning of next year.
In the second half of the trading session, the Treasury market showed steady demand for seven-year bonds, leading to a decline in the benchmark yield. The index fell to 4.581%, down 0.6 basis points from Tuesday.
The yield on two-year notes, which typically responds to Federal Reserve interest rate expectations, was flat at 4.33%.
The dollar index, which tracks the dollar against six major currencies, was little changed on Thursday.
The oil market responded lower amid optimism about possible economic stimulus in China and reports of a draw in U.S. inventories.
Gold continues to strengthen thanks to growing demand for safe-haven assets.
The digital asset sector continues to decline:
Global markets continue to show mixed results. With bond yields stabilizing, the dollar stable, and oil prices falling, investors are turning their attention to gold and watching cryptocurrency volatility. All of these factors highlight the current uncertainty and create intrigue for what's to come.
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*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
