Stocks took a sharp downward turn on Friday, with investors appearing increasingly anxious over the outlook for interest rates amid the cooling post-election market rally. The Dow Jones Industrial Average suffered significant losses, plunging 305.87 points or about 0.70%, settling at 43,444.99. Meanwhile, the S&P 500 dropped by 1.32% to close at 5,870.62, and the Nasdaq Composite was hit even harder, falling 2.24% to 18,680.12.
The downward pressure on stocks can be largely attributed to declines within the pharmaceutical sector, especially the shares of Amgen and Moderna, which saw losses of approximately 4.2% and 7.3% respectively. These declines were propelled by President-elect Donald Trump's announcement he plans to nominate Robert F. Kennedy Jr., known for his skepticism toward vaccines, as the head of the Department of Health and Human Services. The SPDR S&P Biotech ETF fell more than 5%, marking its worst performance since 2020.
Technology stocks also felt the sting, with the information technology segment of the S&P 500 suffering the most, declining by over 2%. Major companies such as Nvidia, Meta Platforms, Alphabet, and Microsoft recorded considerable losses. An exception to this trend was Tesla, which managed to gain approximately 3%, standing out among the group of top large-cap technology names frequently referred to as the “Magnificent Seven.”
Kristy Akullian, the head of iShares investment strategy for the Americas at BlackRock, weighed in on the volatile market. She stated, "While we think the macro backdrop still bodes well for risk assets, in the near term we should expect some micro volatility, particularly around potential policy shifts under a new administration. We expect the U.S. equity market to continue to move higher, but don’t expect it to happen in a straight line." Her remarks highlight the mixed feelings among investors, reflecting both optimism for future growth and immediate concerns about policy changes.
Investor jitters were recently intensified due to comments made by Federal Reserve Chair Jerome Powell. Speaking on Thursday, Powell noted the central bank is "not in a hurry" to reduce interest rates, adding fuel to worries about the potential for prolonged high rates in light of strong economic growth. Boston Fed President Susan Collins echoed this sentiment, indicating there is no certainty surrounding the possibility of rate cuts as early as next month. Such remarks signal to market participants the Fed's cautious approach toward loosening monetary policy.
New economic data released on Friday showed October retail sales rose by 0.4%, slightly outpacing the 0.3% economists had anticipated. This modest growth followed the release of October's consumer inflation report, which aligned with expectations. Analyzing this data helps provide insight for both consumers and investors alike, contributing to the discussion surrounding potential economic stability.
The stock market had previously benefitted from a post-election rally following Trump's victory, with the three major indices reaching new highs earlier this week. Yet, this upward momentum has noticeably faltered with the S&P 500 recording a weekly loss of 2.1%, and the Nasdaq Composite trailing behind with about 3.2% loss. The Dow Jones Industrial Average, representing 30 large publicly owned companies, faced a downturn of 1.2% within this timeframe.
On the smaller scale, stocks focused on small-caps represented by the Russell 2000 index experienced notable declines, with around 4% losses this week, reversing the preceding week’s jump of over 8%. Analysts often view small-cap stocks as potential beneficiaries of Trump's pro-business policies, geared toward decreasing regulations, but even those stocks are showing signs of retreat.
Meanwhile, another story emerged from the airline sector, where Goldman Sachs resumed coverage with "buy" ratings on Alaska Air Group, Delta Air Lines, and United Airlines. These stocks have each enjoyed impressive gains this year, fueled by continued post-pandemic recovery. On the flip side, JetBlue Airways and Southwest Airlines were downgraded to "sell" ratings as they face unique challenges amid fluctuated demand and operational hurdles moving forward.
The continuing fallout from the stock market has not only affected the overall trading atmosphere; it has broader economic implications. The looming potential for shifts to the Fed's interest rate policies draws scrutiny from analysts and strategists. Notably, Bank of America economists have recently pointed out the prospect of sweeping policy changes with the upcoming Republican-controlled government, urging caution among investors who might be overly optimistic.
Tom Essaye, founder of the Sevens Report, explained how "Trump’s recent unorthodox cabinet picks" combined with rising interest rates is causing investors to reevaluate the repercussions of the anticipated Republican administration. With inflation still being monitored closely, determining when and how fast rates can be cut will be pivotal for market recovery.
While the majority of the conversations revolving around the stock market evoke discouragement and uncertainty, others remain steadfast, emphasizing the capacity for growth. The consensus among many wall street observers is one of cautious optimism. They are watching the market developments closely as the notion of sustained upward momentum remains intact after the recent hitches.
The next several weeks are likely to be pivotal as traders will continue to navigate through the dual uncertainties of rising interest rates and the political adjustments prompted by the recent elections. It remains to be seen just how these factors will shape the market as reports continue to come out.
