Artificial intelligence (AI) and tech stocks weighed on the Nasdaq Composite (^IXIC -1.49%) At one point, the stock fell by 2.4% today. Dow Jones Industrial Average (^DJI -0.77%) It lost 500 points in a week where the holidays are usually shortened, driven by the Santa Claus rally, which hasn’t materialized so far.
Shares in artificial intelligence chip maker Broadcom (AVGO -1.47%) and e-commerce giant Amazon. (AMZN -1.45%) The stock is trading down nearly 2% as of 2:26 pm ET today. Shares in electric car maker Rivian (Riven -2.78%) It decreased by nearly 3%.
Feeling pressure from rising yields
Usually the last week of the calm year is marked by the rise of Santa Claus. This includes the last five business days of the year and the first two days of January. Stocks tend to rise at the end of the year as most investors are on vacation and trading volumes are low. The average seven-day increase since 1950 is 1.3%.
Although there is still time, the market has underperformed so far. As of this writing, the broader benchmark S&P 500 (^GSPC -1.11%) The stock has fallen about 0.4% since the close of trading on December 23rd.
Amazon, Broadcom and other “Magnificent Seven” technology companies, whose huge market capitalizations consume a large portion of the broader market, led today’s decline, but the biggest players in technology and artificial intelligence This is because he has finally shown his weakness. It was still a great year. The yield on the 10-year US Treasury note rose above 4.60% on the day, its highest level since May.
Yields have soared since the Fed’s last meeting of the year, in which Fed Chairman Jerome Powell and other Fed policy makers signaled they would be more cautious about future interest rate cuts given the strength of the economy. There is. Most traders betting on federal funds rate futures only think the Fed will cut rates once next year. But not everyone is disappointed with today’s decline.
Todd Ahlsten, chief investment officer at Parnassus Investments, told CNBC today: “We are all relieved that we have overcome a contentious election cycle and unusual market dynamics to finish 2024 with strong year-to-date gains. I’m sighing,” he said. “Looking to 2025, the market is expected to expand and improve.”
Sales are not surprising
Today’s decline shouldn’t come as much of a surprise to investors, given the market’s great year, tech and AI valuations, and a sharp rise in yields. Higher yields are less advantageous for riskier stocks, as it increases the attractiveness of investing in safer government bonds. Additionally, many analysts and investors use the 10-year Treasury yield as the discount rate when discounting cash flows in financial models, and higher discount rates reduce the present value of cash flows. .
This is a holiday-shortened week, so I won’t read too much into today’s moves, but Amazon and Broadcom are trading at huge valuations, while Rivian is still not profitable. If yields remain high, we expect these stocks to rebound at some point.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Bram Berkowitz has no position in any stocks mentioned. The Motley Fool has a position in and recommends Amazon. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
