• Financial Directions
• January 21, 2025

What Lies Behind the Turmoil of the U.S. Stock Market?

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In the realm of international finance, few entities wield as much influence as the Federal Reserve, particularly when it comes to monetary policy decisionsRecently, all eyes have been on the U.Sstock market as it experiences significant fluctuations driven by the anticipation surrounding these pivotal decisionsThe U.Sstock indices, notably the Dow Jones Industrial Average (DJIA), have not only shown declines but have also marked a historical moment by recording their longest losing streak since 1978. What lies beneath these sweeping changes in the markets?

On the bright side, certain stocks such as Tesla and Apple have reached new heights, defying the broader market trendsNotably, shares of Quantum Computing surged by over 51%, even triggering a temporary trading halt due to the surge in volumeThis uniquely positioned stock rose an astonishing 65% the previous day alone, marking nearly a 1740% increase year-to-date

This dramatic spike can be attributed to rising investor interest in quantum computing technologies, especially following significant announcements in the sector.

In the backdrop, the market is brimming with anticipation as it awaits the Federal Reserve's final monetary policy decision of the yearThere is also a noteworthy development regarding retail sales in the U.S., which came out stronger than expectedThis intriguing mix of data leaves investors with a sense of urgency as they seek clarity from the Federal Reserve's upcoming meeting.

On December 17th, the three major U.Sindices, the Dow, S&P 500, and Nasdaq, all closed lower as the DJIA faced a drop of 267.58 points, or 0.61%, closing at 43,449.90 pointsMeanwhile, the Nasdaq saw a smaller decline of 64.83 points, or 0.32%, bringing its close to 20,109.06 points; while the S&P 500 fell 23.47 points, or 0.39%, ending at 6,050.61 points

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With this slide, the DJIA observed a consecutive ninth-day drop, setting an unwanted record for its longest losing day streak since the late 70s.

The factors contributing to the downturn in the DJIA can largely be attributed to sector rotations within the marketFollowing a surge in technology stocks post-November, investors increasingly shifted their interest away from traditional industries that the DJIA typically representsThis transition reflects broader market trends where tech and growth stocks have been capturing the spotlight.

As traders eagerly await the Federal Reserve's upcoming interest rate decisions, their focus is locked on the monetary policy meeting scheduled for December 17-18. Expectations are running high, with market analysts assigning a whopping 95% probability to a forthcoming 25 basis points rate cut

The sentiment in the trading communities suggests that another 25 basis point decrease could occur by 2025, following further anticipated cuts in the near future.

The market's outlook indicates a broad consensus for a 25 basis-point cut this week and looks ahead towards additional cuts in 2025, fervently seeking direction from the Federal ReserveA striking 80% probability of further trimming rates next year adds weight to investors' expectations, markedly improving from earlier predictions at the month’s beginning, which anticipated fewer cuts.

Investors are also keeping a keen eye on the statements from the Federal Open Market Committee (FOMC) and comments from Jerome Powell, the Fed's ChairThese insights are crucial in deciphering future monetary policy directions, and understanding the implications of the Fed's decisions on financial markets overall.

Over the course of 2023, U.S

equities have shown remarkable resilience, with the three indices frequently reaching new peaksAs the end of 2024 approaches, the focus has shifted to what lies in store for the markets—will they continue their climb, or will the gains begin to vaporize?

In terms of economic indicators, retail sales in the U.Sexperienced a noteworthy uptick in November, climbing by 0.7% compared to the previous month, outperforming predictions of a 0.6% increaseRemoving the automotive sector from the equation, retail sales still saw a lesser rise of 0.2%, trailing behind an expected 0.4% increaseAnalysts have posited a range of estimates spanning from -0.1% to 1% prior to the announcement.

This increase took retail sales figures to an impressive $724.6 billion in November, signaling robust consumer spendingNotably, when excluding automobile dealerships, building materials, and gasoline stations, retail sales rose by 0.2%. These figures underscore a reflection of spending behaviors that are serving as insights into consumer confidence levels across the nation.

Moreover, sales from vehicle dealerships showed an increase of $8.5 billion to reach $129.2 billion year-on-year, reaffirming the vitality of the automotive sector.

In sector performance on this particular day, the S&P 500’s eleven major sectors displayed a stark dichotomy: ten sectors fell while one, consumer discretionary, saw an increase of 0.28%. The industrial and energy sectors faced the most considerable declines, with losses of 0.90% and 0.76%, respectively.

In terms of big tech stocks, the majority faced downward trends

Broadcom’s shares dipped over 3%, while major players like Intel and NVIDIA also followed suit with slight declinesNotably, NVIDIA has struggled recently, with shares down 1.7% for the third consecutive day and increasingly losing ground since setting a local high back in NovemberThe company attempted to generate a boost by rolling out a new developer kit, promising enhanced AI capabilities at a competitive price point.

However, amid these downturns, Tesla rose over 3.64%, achieving a new record high with trading volumes exceeding $61.15 billion, while Apple shares similarly increased by 0.97%, signifying a robust performance in the tech realm.

In a noteworthy response to rising tensions regarding ethical sourcing practices, Apple has made it clear that it contests claims regarding the use of conflict minerals in its products

The company has actively urged suppliers to cease operations in conflicting regions, reflecting a commitment to corporate responsibility as it safeguards its reputation amid scrutiny.

On the contrary, Broadcom's shares fell by 3.91%, partially retracting from its previous two days of impressive gains post-earnings releasesThe company recently soared by almost 38% following the announcement of custom AI chips for its clients, further illustrating the volatile nature of the tech stocks in reaction to corporate developments.

Quantum Computing Company’s shares continued their upward trajectory with a staggering rise of 51.53%, pushing trading volumes to approximately $28.76 billionThe rising enthusiasm regarding quantum computing, particularly following Google’s notable advancements in its quantum chip technology, has ignited investor interest significantly

In a recent contract signed with NASA, the Quantum Computing Company will lend its advanced capabilities to enhance imaging solutions—showcasing the practical applications driving the stocks higher.

In the energy sector, downward trends were prevalent, with prominent players such as Apache and Schlumberger experiencing declines of over 4%. Notably, crude oil prices for January delivery saw a drop, settling at $70.08 per barrel.

As the Federal Reserve’s decisions loom large, the fluctuations in the stock market result from a complex interplay of various contributing factorsThe intricate web of macroeconomic data, shifts in sector investments, uncertainty surrounding monetary policy expectations, and singular events centered around high-profile stocks intersect, ultimately influencing the overall trajectory of the U.S