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U.S. tech stocks fell on Friday as investors walked away from the companies that drove the market higher for much of this year.
On Friday, Wall Street’s main stock index, the S&P 500, fell 1.1%, and the tech-heavy Nasdaq Composite Index fell 1.5%. Elon Musk’s electric car maker Tesla was one of the worst laggards, falling 5%, while chipmaker Nvidia fell 2.1%.
“We watch probably 30 different (market indicators) and they’re all down today,” said Jack Ablin, chief investment officer at Cresset Capital. “It was just widely sold without much enthusiasm.”
Tech stocks have rallied strongly this year as investors bet that artificial intelligence will drive demand for everything from servers to microchips. The rally accelerated after Donald Trump’s victory in the November election on expectations that he would introduce more pro-business policies when he begins his term next month.
But the sector has been volatile in recent weeks as investors reassess their best-performing holdings as the year ends. The Federal Reserve last week predicted it would cut interest rates only twice next year, compared with four expected in September, as officials worry about the growing risk that inflation will remain well above the central bank’s 2% target. This caused an uproar as well.
The hawkish outlook has pushed up long-term U.S. borrowing costs, pushing the 10-year Treasury yield to 4.63% on Friday, compared with a low of about 3.6% in September. Higher yields typically make owning shares of fast-growing companies less attractive.
Citigroup analysts said Friday they still expect the S&P 500 index to rise about 10% from current levels by the end of next year, but expect “some volatile parts of the bull market ahead.” .
The bank said the rise in stock prices relative to this year’s corporate earnings “sets a high bar for the fundamentals of next year and even the year after.” The S&P 500 trades at about 22.2 times expected earnings for the coming year, compared with an average of 18.1 times over the past 10 years, according to FactSet data.
“Despite Friday’s volatility, the market is still higher than Monday,” said Greg McBride, chief financial analyst at Bankrate.com.
“Markets don’t go straight up, and pullbacks often form the basis for the next market move,” he said.
Even after Friday’s pullback, the S&P 500 index is still up 25% year-to-date, roughly on par with its gains a year ago.
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According to Howard Silverblatt of S&P Dow Jones, the so-called “Magnificent Seven” tech stocks (Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia, and Tesla) have made the most of the S&P 500, including dividends, this year. The index accounts for about half of the return.
However, all seven Magnificent stocks fell slightly on Friday.
There is usually less trading activity than usual during holiday periods, and this can exacerbate volatility.
