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Stocks are falling as traders brace for fewer rate cuts from the Federal Reserve.
The S&P 500 slid 0.6 percent between Friday, December 6, and Friday, December 13. It was the first negative week in the last four. More than three-quarters of the index’s members lost value as interest-rate sensitive companies fell.
The consumer price index (CPI) and producer price index (PPI) both rose last week, which suggests that inflation has stopped falling. Those numbers set the stage for Wednesday’s key Fed meeting.
Policymakers are widely expected to lower their overnight lending rate by 25 basis points. The bigger news will be their guidance about future rates and economic forecasts. This additional document, which released each quarter, is known as the Summary of Economic Projections and includes the closely watched “dot plot.”
Tesla (TSLA), daily chart, with select patterns and indicators.
Market expectations suggest this week’s cut will be the last until March. Bond yields have steadily risen but are still relatively low compared with shorter-term rates. For example, the 10-year Treasury yield is only about 20 basis points above the two-year rate. The difference has typically been closer to a full percentage point, which may open the door to higher borrowing costs in 2025. Such a trend could potentially weigh on stock prices and risk appetite.
Last week also brought news that the U.S. fiscal deficit rose 17 percent from November 2023. It was $18 billion bigger than expected. That could also pressure borrowing costs higher.
| Broadcom (AVGO) | +25% |
| Walgreen Boots Alliance (WBA) | +21% |
| Warner Bros. Discovery (WBD) | +13% |
| Tesla (TSLA) | +12% |
| Boeing (BA) | +10% |
| Source: TradeStation Data |
Higher rates can potentially weigh on stock prices and risk appetite. That could be especially true for some of the cyclical stocks that jumped after the November 5 reelection of Donald Trump. The Russell 2000 small-cap index, banks and industrials all climbed on optimism his Administration will stimulate economic growth.
Those groups have struggled more recently. Did investors “buy the rumor?” Are they now “selling the news” as they wait for Trump to take office and announce policies?
Some of these cyclical stocks are also sensitive to higher interest rates.
Another potential risk could result from weaker growth. For example, initial jobless claims rose more than expected last week. Tomorrow’s retail sales report will provide further information about consumer spending. Weaker data could trigger worries about potential stagflation. That’s when the economy and employment slow without inflation easing.
Broadcom (AVGO), daily chart, with select patterns and indicators.
Broadcom (AVGO) rose the most in the S&P 500 last week, and had its biggest gain ever. The semiconductor company jumped after saying it may sell $90 billion of customized AI chips. That stunned investors who were mostly expecting weak numbers. AVGO also became the eighth U.S. company with a market capitalization above $1 trillion, leapfrogging past Warren Buffett’s Berkshire Hathaway (BRK.B).
Tesla (TSLA) also zoomed to new record highs as investors focused on potential growth from its Optimus robots. CEO Elon Musk’s alliance with Trump has also boosted confidence in the company. That was bolstered by a Reuters report Friday that the incoming Administration wants to stop reporting crashes by self-driving vehicles.
Some of the S&P 500’s other big gainers last week were laggards that bounced on positive news:
Alphabet (GOOGL) had the sixth-biggest gain in the S&P 500 after announcing a new quantum-computing superchip named Willow.
| Super Micro Computer (SMCI) | -17% |
| Adobe (ADBE) | -16% |
| Omnicom (OMC) | -13% |
| Nucor (NUE) | -12% |
| Cigna (CI) | -11% |
| Source: TradeStation Data |
Discretionaries rose more than 1 percent last week, and communication stocks were fractionally positive. Aside from those, every major sector fell.
Biotechnology, metals and homebuilders declined the most. Banks, materials and small caps also led to the downside. That’s consistent with the weakness in cyclicals noted above.
Super Micro Computer (SMCI) was the worst performer in the S&P 500 after leading the index in two of the previous three weeks.
Adobe (ADBE) also fell on weak guidance.
The S&P 500 swung just 39 points between its high and low last week, its smallest range since the start of October. That may suggest the index has stalled after flirting with 6,100 on Friday, December 6.
S&P 500, daily chart, with select patterns and indicators.
In addition, the Advance/Decline line has fallen every session this month. Friday also saw more index members hitting new 52-week lows than 52-week highs. Those weaker breadth signals may suggest fewer stocks are participating in the rally.
Moving average convergence/divergence (MACD) has been sliding as well — a potential sign of weaker momentum.
Four of the five candlesticks last week had solid bodies. That means closing prices were below the opening prices, which may suggest that buyers are fading.
Chart watchers may see potential support around 6030, which is near the weekly close on November 29 and the previous week’s low. Below that, the mid-November low around 5855 could be important.
This is the last full week of the year. The Fed meeting is the big item, but there some other economic events and earnings reports.
Nothing important is scheduled for today.
Tomorrow brings retail sales, an important measure of consumer activity that’s beaten estimates for the last five months.
Wednesday is the big day. Housing starts and building permits in the premarket might impact housing stocks. Crude oil inventories are due in the morning. Micron Technology (MU) reports earnings in the afternoon.
The Fed news begins at 2 p.m. ET with the policy statement and the summary of economic projections. Chair Jerome Powell delivers a press conference 30 minutes later. Nike (NKE) and FedEx (FDX) issue results in the post market.
Friday brings the personal consumption expenditures (PCE) price index, an important inflation gauge in the eyes of the Fed.
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