U.S. stocks ended the week with a sell-off due to profit-taking, rising bond yields, and disappointing earnings from Applied Materials. Worries over Nvidia’s earnings next week added to negative Wall Street sentiment.
The S&P 500 ended Nov. 15 at 5,870.62, down by 2.08 percent for the week; the Dow Jones finished at 43,444.99, down by 1.24 percent; the tech-heavy Nasdaq ended at 18,680.12, down by 3.15 percent; and the small-cap Russell 2000 ended at 2,303.84 with a loss of 3.99 percent.
Stocks spent most of the week hovering near all-time highs, but they began selling off on the afternoon of Nov. 14 as bond prices resumed their decline from the previous week, sending yields even higher. The benchmark 10-year U.S. Treasury bond ended the week with a yield of 4.44 percent, up from 4.3 percent at the beginning and 4.27 percent the previous week.
Bond yields continued an uptrend that began in the middle of September following the news during the week, which confirmed that U.S. inflation remains elevated. The consumer price index, a measure of the cost of living, rose at an annual 2.6 percent in October, up from 2.4 percent in September, the first increase in inflation in seven months.
The core consumer price inflation rate in the United States, which excludes volatile food and energy prices from the calculation, came at a three-month high of 3.3 percent in October.
These elevated inflation numbers follow the core Personal Consumption Expenditures price index release a couple of weeks ago, which rose by 0.3 percent from September 2024. It was the highest gain in five months, following an upwardly revised 0.2-percent increase in August.
They all point to inflation’s “stickiness,” which complicates monetary policy.
“Sticky inflation is making people wonder if the easy progress on inflation is done with a tougher road ahead,” David Russell, head of Market Strategy of TradeStation, told The Epoch Times in an email. “December is still in play for a cut, but 2025 is less and less of a sure thing.”
Russell said that “a clash” between President-elect Donald Trump and Federal Reserve Chair Jerome Powell could be “around the corner.”
Elevated inflation and a robust economy make it more likely that the Federal Reserve will slow the pace of interest rate cuts.
That’s bad news for fixed-income securities such as bonds, as elevated interest rates make the income these assets pay bondholders less valuable when discounted to the present. Thus the decline in the bond prices, the rise in bond yields seen at the end of the week, and the decline in equities as higher yields compete against equity returns.
Meanwhile, tech investors will be wary of Nvidia’s earnings next week. The tech giant has a tradition of reporting exponential growth in sales and profits, riding the growing demand for AI chips.
But Brian Colello, CPA, an equity strategist for Morningstar, said he is concerned that buyers of these chips may look for cheaper alternatives.
Still, Ed Tom, senior director of derivatives market intelligence at Cboe Global Markets, said he sees market volatility normalizing.
“Cross-asset volatilities, elevated at [90-plus] percentile highs for the last month, were crushed with the resolution of the U.S. Presidential Elections and continued FOMC rate moderation,” he told The Epoch Times in an email.
“This combination catalyzed a cross-asset risk-on sentiment and normalized the implied volatilities of the major asset classes towards their historical average levels.”
