U.S. stocks staged a solid rally on Friday, led by techs, but ended the week lower, in yet another weekly reversal due to elevated bond yields and profit-taking.
The S&P 500 ended Jan. 3 at 5,942, down 1.58 percent for the week; the Dow Jones closed at 42,732, down by 1.37 percent; the Nasdaq finished the week at 19,621, down 1.9 percent; and the small-cap Russell 2000 was down 0.51 percent to end at 2,268.
Stocks began the trading week on the negative side. Techs sold off as profit-taking ahead of the end of the year overpowered the bullish Santa Clause sentiment seen at the beginning of the previous week.
Another factor cooling off the seasonal bullish Wall Street sentiment was the persistently elevated U.S. Treasury bond yields, which hovered at a multiple-week high of 4.55 to 4.60 percent.
Bond yields remained elevated despite the absence of major economic news that would indicate that the U.S. economy is overheating, other than an unexpected drop in initial weekly claims, which would suggest strength in the labor market.
Antwyne DeLonde, CEO at VisionX, attributes the stubbornly high bond yields to investor concerns over potential inflationary policies under the new administration, he told The Epoch Times. Nonetheless, these yields continued to put pressure on interest-sensitive sectors of the economy, such as homebuilders and utilities.
A third factor worrying equity investors during the week was the strong dollar, which hurts the earnings of U.S. multinational corporations with a significant overseas presence. The greenback traded at a record high against the Chinese yuan as persistent weakness in the Chinese economy boosted expectations among market participants of further monetary easing by China’s central bank.
That was music to the ears of AI chip makers such as Nvidia, AMD, and Arm Holdings, which stand to benefit from Microsoft’s building of these centers. Thus, the rally seen in the shares of these companies and “derivative” plays like utilities, which stand to benefit from the growing use of electricity to power these centers on Friday.
A third factor helping the tech rally on Friday is anticipation of the Las Vegas electronics show beginning next week. It’s a place and time where large and small tech companies announce new products and new deals, hyping traders’ and investors’ expectations.
“It’s often said when markets drop, smart investors prepare to win,” David Materazzi, CEO of Galileo FX, told The Epoch Times.
“The S&P 500, Dow, and Nasdaq all fell this week, but the reasons behind it show where the chances lie. The S&P dropped because the economy is fighting high interest rates: some say it’s overvalued, others see it getting leaner for stronger growth. The Dow struggled with weak industrials and global uncertainty, but its reliable dividend stocks keep it steady like a well-anchored boat in rough seas. The Nasdaq took the hardest hit, hurt by rising rates that weigh on tech stocks, yet the pullback feels like a loaded spring ready to leap as innovation in AI, chips, and cloud technology reshapes industries. When prices fall, it’s not a loss: it’s a test of how well you understand what’s next.”
Looking ahead to next week, DeLonde expects equity investors to closely monitor fresh economic data on the state of the labor market and manufacturing activity. This data could set the pace for earnings and interest rates, the two most important variables determining equity valuations.
In addition, DeLonde thinks investors will be looking for hints on policy developments. “The market is attentive to potential policy announcements from the incoming administration, particularly regarding fiscal stimulus and trade policies, which could influence market direction,” he said.
