Stocks dropped sharply on Friday as the post-election rally lost steam and concerns over the trajectory of interest rates weighed on investor sentiment. The Dow Jones Industrial Average fell 305.87 points, or 0.70%, to close at 43,444.99. The S&P 500 declined 1.32%, ending the session at 5,870.62, while the Nasdaq Composite sank 2.24% to 18,680.12.
The S&P 500’s information technology sector saw the steepest losses, with major names like Nvidia, Meta Platforms, Alphabet, and Microsoft all retreating. Tesla, however, stood out among its fellow “Magnificent Seven” stocks, climbing 3% as part of what’s being referred to as the “Trump Trade.” Pharmaceutical stocks added to the pressure on the Dow and the S&P 500, with Amgen sliding 4.2% and Moderna dropping 7.3%. The major indexes had been riding a postelection rally following Trump’s win, with fresh highs reached earlier in the week. However, that momentum has begun to slow. For the week, the S&P 500 lost 2.1%, the Nasdaq Composite shed 3.2%, and the Dow declined 1.2%.
This week will bring noteworthy economic updates, particularly in housing and manufacturing.
According to Yardeni Research, the latter is likely to signal that economic growth is beginning to expand into the goods sector, which has been subdued since the Federal Reserve began raising interest rates. The average of regional Federal Reserve banks’ manufacturing PMIs (M-PMIs) closely tracks the national ISM Manufacturing PMI. Last week, the New York Fed’s November M-PMI soared to 31.2, its highest reading since 2021, driven by a sharp increase in new orders. If similar expansions are reflected in the Kansas City and Philadelphia Fed surveys on Thursday, the national ISM M-PMI could surpass 50.0 for the first time since before the Fed’s rate hikes began. “The New York M-PMI may be the first sign of ‘animal spirits’ unleashed by the presidential election results,” Yardeni notes.
In housing, mortgage applications, set to be reported Wednesday, are expected to stay subdued due to rising mortgage rates tied to higher Treasury yields over the past two months. Existing home sales, to be released Thursday, likely remained weak in October, continuing the sector’s rolling recession. Housing starts, also due Thursday, were likely held back by hurricane impacts during the month. Weekly initial and continuing unemployment claims will be published on the same day, with Yarden expecting it to be near record lows again. “We suspect business owners will become more confident now that the election is over, which could lead to an increase in hiring, while layoffs remain subdued,” the firm notes.
Week of Nvidia earnings
While investors continue to pore over economic data, the third-quarter earnings season continues in full swing. The highlight of the week will be Nvidia’s report on Wednesday, widely seen as a key indicator of the ongoing AI boom. Wall Street analysts remain optimistic about the chipmaker’s prospects, even as heightened market expectations introduce the potential for short-term volatility. Last week, analysts at Raymond James highlighted that Nvidia’s days of inventory (DoI) has hit a four-year low, reflecting challenges stemming from the complexity of its new systems and extended production cycles. These constraints may temporarily limit shipments of Nvidia’s Blackwell GPUs. However, the firm anticipates a significant increase in Blackwell shipments during the first half of 2025, driven by strong demand for Nvidia’s Spectrum-X networking technology. It raised its price target from $140 to $170, emphasizing that “any pullback due to high expectations [is] an opportunity.”
Other high-profile companies to report earnings this week include Walmart, Palo Alto Networks, Baidu, Snowflake, and Nio, among others.
What analysts are saying about US stocks
RBC Capital Markets: “Over the past week we’ve become increasingly convinced the S&P 500 may have already begun to experience another 5-10% drawdown or garden variety pullback.”
“We don’t think a drawdown in the US equity market would exceed 10% since declines more than that tend to be associated with growth scares or recessions. GDP forecasts have been firming up for both 2024 and 2025, while US economic surprises have been positive. While that could change, it gives us comfort for now that any further downside will be limited.”
Evercore ISI: “Trump’s decisive 11/6 win brought certainty, a Red Sweep. Volatility dropped and equities roared. Near term though, too much certainty has bred a degree of complacency. The urgency by President-Elect to ‘Move Fast, Break Things’ is creating turbulence. The percieved drags from tariffs/immigration could exacerbate the equity market pullback, which has -5% to -9% near term downside. A Fed not in a hurry to cut rates is an additional headwind, as is higher U.S. 10 year yield. A conclusive move into 4.5% resistance has capped the SPX rally after touching our 6,000 PT. A move toward 4.75% to 5% could catalyze a deeper selloff especially as valuations are extended.”
Morgan Stanley: “We raise our [S&P 500] base case 12-month price target to 6,500.”
“The market will likely need more positive growth data to move to our year-end 2025 base case price target of 6,500; we see this playing out, but believe that it will likely take time, particularly given the overbought conditions and uncertainty of how new policies will be sequenced and interpreted.”
UBS: “We see the S&P500 ending 2025 at 6,400 (~6%), with returns being backloaded. After a rally this year through Trump’s cabinet appointments, we see mild downside in equities in H1 next year amid a step down in US growth. Once earnings estimates have fallen to more realistic levels, H2 ’25 should be better.”
Goldman Sachs: “ We are entering a benign part of the cycle; interest rate cuts that coincide with economic growth tend to be supportive for equities. Nevertheless, global equities have already risen 40% since October 2023 leaving them more vulnerable to any disappointments. Equity valuations have increased and leave little room for further valuation expansion. We expect index returns to be driven largely by earnings growth.”