U.S. stock markets experienced a retreat on Tuesday, easing some of the substantial gains accumulated throughout the year.
The S&P 500 index fell by 0.4%, even though it remains close to its record high achieved earlier this month. The Dow Jones Industrial Average witnessed a decline of 267 points, equivalent to a 0.6% drop, while the Nasdaq composite index decreased by 0.3% after just setting a new record the previous day.
Nvidia, a key player contributing to Wall Street’s recent successes, saw its stock drop by 1.2%. This marked the eighth decline in nine days for the company, which has now lost over 12% from its prior peak reached last month, indicating a slowdown in its remarkable momentum.
As with the broader market trends, Nvidia’s stock had rallied so significantly that analysts began to caution about overly optimistic expectations. They warned that the current stock price is justified only if everything goes perfectly from this point forward.
A survey conducted by strategists at Bank of America among global fund managers revealed that many are choosing to invest in U.S. stocks while withdrawing funds from their cash reserves. The findings indicated that fund managers are maintaining a notably low percentage of cash in their portfolios, reminiscent of the years preceding tougher market conditions in 2002 and 2011.
According to Michael Hartnett, a strategist at BofA Global Research, the survey’s broadest measure of optimism, which assesses expectations for economic growth along with other metrics, has reached its highest level since August 2021. This trend may raise concerns for those with a contrarian viewpoint.
The S&P 500 is poised to record one of its strongest performances since the turn of the millennium, showing an increase of nearly 27%, fueled by a resilient U.S. economy, expectations surrounding President-elect Donald Trump’s policies to enhance growth without exacerbating inflation significantly, along with monetary easing from the Federal Reserve, which has initiated interest rate cuts from their two-decade highs.
Speculation is high that the Federal Reserve will announce the third interest rate reduction of the year on Wednesday, accompanied by updates on their outlook for future rates.
However, expectations for further cuts have begun to decline, especially since inflation appears poised to remain stubbornly above the Fed’s 2% target, even after sharp reductions from its previous peak of over 9%. A report released on Tuesday showcased that U.S. retail sales exceeded economists’ forecasts last month, hinting at an economy that may not be in urgent need of additional support through lower interest rates. Yet, while lower rates can stimulate growth, they may also feed inflation.
Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, stated, “The Fed is still on track to cut rates (Wednesday), but an abundance of strong economic data could raise the likelihood of a pause in January.”
In the bond market, Treasury yields remained largely unchanged following the latest reports. The 10-year Treasury yield was stable at 4.40%, similar to its position late Monday. The two-year yield, which is more closely aligned with the Fed’s expectations, dipped slightly to 4.24% from 4.25%.
On Wall Street, Broadcom experienced a 3.9% decrease, marking its first decline after two consecutive sharp gains that had propelled the firm’s share price. Following the release of a strong profit report and optimistic revenue forecast—influenced by the rising demand for its artificial-intelligence products—Broadcom saw its stock jump 24.4% and then 11.2% over consecutive days.
Both Broadcom and Nvidia significantly impacted the S&P 500’s performance on Tuesday.
Conversely, Pfizer offered some support to the market, with its stock climbing by 4.7% after projecting a stronger-than-expected profit outlook for the upcoming year. Other pharmaceutical stocks also performed well, including a 3.2% rise for Bristol-Myers Squibb.
Overall, the S&P 500 decreased by 23.47 points to close at 6,050.61. The Dow Jones Industrial Average dropped by 267.58 points, closing at 43,449.90, while the Nasdaq composite lost 64.83 points, finishing at 20,109.06.
In international markets, London’s FTSE 100 fell by 0.8%, as investors awaited an interest rate decision from the Bank of England on Thursday.
Japan’s central bank is also set to meet later this week to discuss interest rates, and Tokyo’s Nikkei 225 saw a slight decrease of 0.2%. In contrast to global trends, the Bank of Japan is moving to raise rates after maintaining a policy rate below zero for several years.
Bitcoin surged to a record above $108,000 before retreating slightly to around $106,500, as reported by CoinDesk.com. The cryptocurrency has skyrocketed from approximately $44,000 at the beginning of the year, buoyed by a recent surge in enthusiasm regarding policies that might favor digital currencies under Trump’s administration.