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In quiet trade for the last week of trading, all three of the widely followed indices fell on Monday. The S&P 500 (SPY) dropped by 1.07%, the Dow fell by 0.97%, and Nasdaq (QQQ) lost 1.19%. The Russell 2000 (IWM) declined by 0.77%. The drop may not mean much when the relative trading volume is below 1.0. Both the Dow and S&P 500 had a value below that figure. However, the technology-heavy Nasdaq closed at a relative value of nearly 1.5 times.
Markets sold shares of Micron Technology (MU), Broadcom (AVGO), and Tesla (TSLA).
Stock valuations are at an increasing risk of a market correction, so long as the 10-year Treasury yield rises. Although the yield fell from its seven-month high to close 1.6% lower to 4.545%, the bond rally may continue in 2025. The bond market is pricing in the impact of severe tariffs which would increase inflation in the U.S. In addition, the Federal Reserve is no longer willing to cut rates at a measured pace in 2025. Finally, inflation rates (without the impact of tariffs) are still higher than the target 2.0% rate.
Watch for markets to try to achieve a 25% return for 2024. In the year-to-date period, the S&P 500 returned 23.76%.
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