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U.S. technology stocks fell on Friday as investors retreated from companies that had led the market higher for much of this year.
Wall Street’s main stock benchmark, the S&P 500, fell 1.1% on Friday, while the tech-heavy Nasdaq fell 1.5%. Elon Musk’s electric car maker Tesla was among the biggest losers, down 5%, while chipmaker Nvidia fell 2.1%.
“I looked at probably 30 different ones [market indicators] “They’re all down today,” said Jack Ablin, chief investment officer at Cresset Capital. “It’s just a broad sell-off without a lot of enthusiasm.”
Technology stocks have rallied strongly this year as investors bet that artificial intelligence will drive demand for everything from servers to microchips. The gains accelerated after Donald Trump won the election in November, raising bets that the president-elect would roll out more business-friendly policies when he begins his term next month.
However, the sector has been volatile in recent weeks as investors reassess their best-performing holdings at the end of the year. The Fed also stirred controversy last week when it forecast just two rate cuts next year, compared with four in September, as officials worried about the growing risk of inflation running well above the central bank’s 2% target.
The hawkish forecast has pushed up long-term U.S. borrowing costs, with the 10-year Treasury yield rising to 4.63% on Friday, compared with a September low of about 3.6%. Higher yields often hurt the appeal of owning stocks in fast-growing companies.
Citigroup analysts said on Friday that while they still forecast the S&P 500 to rise about 10% from current levels by the end of next year, they expect “more volatile bull market trends going forward.”
The Bank of America noted that this year’s share price gains relative to corporate profits “set the bar high for fundamentals in the year ahead and even the year after.” FactSet data shows that the S&P 500’s expected price-to-earnings ratio next year is about 22.2 times, while the average price-to-earnings ratio over the past decade is 18.1 times.
Greg McBride, chief financial analyst at Bankrate.com, said, “Despite the higher volatility on Friday, the market was still higher than on Monday.”
“Markets don’t rise in a straight line, retracements often become the basis for the next market rise,” he said.
Even after Friday’s pullback, the S&P 500 is still up 25% year to date, roughly in line with last year’s gains.
Howard Silverblatt of S&P Dow Jones said the so-called “big seven tech stocks” – Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla – contributed to S&P 500 total returns this year (including dividends).
However, all shares of Magnificent 7 were down slightly on Friday.
Trading activity during the holidays is typically lower than usual, which can increase volatility.
