Stocks tumbled on Friday as the postelection rally fizzled and investors fretted over the path of interest rates. The Dow Jones Industrial Average lost 305.87 points, or 0.70%, to end at 43,444.99. The S&P 500 slipped 1.32% and closed at 5,870.62, while the Nasdaq Composite fell 2.24% to 18,680.12.
Declines in pharmaceutical stocks weighed on the 30-stock Dow and the S&P 500. Key stocks in the sector were down about 4.2% and 7.3%, respectively. President-elect announced on Thursday that he intends to nominate a new head for the U.S. Department of Health and Human Services.
This announcement caused turbulence in the sector, leading to the S&P 500 posting its worst week since 2020. The information technology sector also suffered, with a more than 2% decline, though shares of the electric vehicle giant, often linked to the “Trump Trade,” were up by 3%. “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,” said Kristy Akullian, head of iShares investment strategy, Americas, at BlackRock.
“We expect the U.S. equity market to continue to move higher, but don’t expect that rise to happen in a straight line.”
Traders also grappled with recent comments from Federal Reserve Chair Jerome Powell, who highlighted on Thursday that strong economic growth allows policymakers to take their time deciding the extent of rate reductions. Boston Fed President Susan Collins echoed the cautious sentiment, noting that October retail sales data showed a 0.4% increase, slightly better than the 0.3% forecast from economists polled by Dow Jones. The major averages had been riding a postelection rally since President-elect Trump’s victory at the polls, with the three indexes touching fresh highs earlier in the week.
However, the momentum has slowed, resulting in a 2.1% weekly loss for the S&P 500 and a 3.2% slide for the Nasdaq Composite.
Stocks slide amid interest rate concerns
The Dow fell 1.2% for the week.
John Butters, senior earnings analyst at FactSet, indicated that the S&P 500 blended earnings growth rate for Q3 of 2024 is 5.4%, marking the fifth consecutive quarter of earnings growth. However, only 75% of companies have beaten analysts’ earnings estimates, below the five-year average of 77%. Furthermore, S&P 500 companies are topping forecasts by an average of 4.3%, almost half the five-year average of 8.5%.
The outlook may also be dimming, with 68% of the 80 S&P 500 companies projecting their fourth-quarter earnings issuing negative guidance, above both the five-year average of 58% and the 10-year average of 62%. The forward price-to-earnings ratio for the S&P 500 stands at 22.0, higher than the five-year forward P/E average of 19.6 and the 10-year average of 18.1.
In a Friday note, Goldman Sachs resumed coverage of the airline industry with buy ratings on several stocks, which have gained significantly in 2024. Analyst Catherine O’Brien noted that airline stocks have been volatile this year due to post-pandemic effects and supply constraints.
O’Brien forecasts industry unit revenue will increase by 2% year over year and emphasized airlines’ exposure to premium/corporate demand and competitive capacity. Small-cap stocks experienced significant losses this week after prior gains from the postelection rally. The Russell 2000 index dropped around 4% this week, reversing its 8% gain from the previous week.
Small caps are seen as beneficiaries of President-elect Donald Trump’s deregulation stance, but despite this week’s declines, the Russell 2000 is up nearly 5% in November and poised for a 13% annual increase. Bloom Energy surged more than 51% during the session, hitting a new 52-week high and setting the stock on pace for its largest percentage increase on record. This jump follows Piper Sandler’s upgrade to overweight, driven by a recent supply agreement that could lead to additional growth opportunities for the company.
