Large-cap stocks led to a decline in US indexes at the end of 2024. Market experts blame rising nervousness as investors readjust their expectations for 2025. The bull market is expected to continue into next year, even as correction risks increase.
Market analysts say investors hungry for year-end bulls may need to brace for more disappointment as 2025 begins.
The U.S. index posted double-digit gains through 2024, but the momentum stalled at the end of the year. Markets are struggling while investors normally enjoy year-end “Santa Claus” gatherings.
The benchmark S&P 500 index has fallen more than 2% since Thursday, led by declines in popular tech stocks.
“I think this is evidence of how nervous the market is,” Gene Munster, managing partner at Deepwater Asset Management, told CNBC on Friday. They are looking for reasons for this withdrawal.”
Although there was no clear trigger for tech investors to exit, Munster noted that the market’s euphoria has come under increasing strain this month. Traders are growing more “fearful” after the Federal Reserve signaled it would cut interest rates less next year, continuing to test market confidence.
Munster suggested that inflation uncertainty is behind the Fed’s renewed hawkish stance and that investors are selling ahead of next month’s consumer price index report. He noted that the Jan. 15 inflation announcement is scheduled ahead of tech company earnings.
“For investors who have been enjoying this ride, as we look ahead to next month, it’s understandable that there’s such anxiety in the market,” he said.
Wharton University professor Jeremy Siegel agreed that a reversal in Magnificent Seven stock could begin in January as investor optimism becomes more difficult. The market could “turn around” in 2025, moving away from tech stocks, leading to lower returns.
“There may be some disappointment. As time goes on, I think a correction next year, defined as a 10% decline in the S&P, is becoming more likely,” Siegel told CNBC. “I think there are big forces already built in to push things upwards.”
None of this is to say that U.S. stocks won’t continue to rise. In Munster’s view, tech company valuations remain justified, but investors should prepare for price declines to become more common.
According to Fundstrat’s Tom Lee, the S&P will reach 7,000 in the first half of 2025, even if upcoming inflation reports exacerbate market fears.
“Investors have been a little nervous since the FOMC’s Dec. 18 interest rate decision and are concerned that the Fed may not be as dovish as investors previously thought,” the managing partner said in an interview with CNBC. I’m concerned.”
But he said the Fed’s change in attitude hasn’t changed the fundamental tailwinds heading into 2025, citing improved CEO sentiment and hopes for pro-business policies from the Trump administration.
“I think one of the lessons of 2024 is that there have been periods of volatility and weakness in the market. I know that investors are quick to turn bearish in such situations, but these It all turned out to be a buying opportunity,” Lee said.
