Stocks keep falling as hawkish news and rising yields hammer sentiment.

The S&P 500 declined 1.9 percent between Friday, January 3, and Friday, January 10. (There were only four sessions because of former President Jimmy Carter’s memorial.) It was the fourth drop in the last five weeks, with three-quarters of the index’s members losing value. Some chart watchers may fear the S&P is at risk of breaking important support. (See below for more.)

The selloff occurred as Treasury yields rose in response to several economic events:

Federal Reserve Governor Lisa Cook started the week by saying policymakers can “proceed more cautiously with further rate cuts.”
Other officials echoed her views. Susan Collins of the Boston Fed called for a “gradual and patient approach to policymaking.” Governor Michelle Bowman was more decisive, calling December’s rate cut a “final step.” She added that inflation is “uncomfortably above” 2 percent.
Two reports from the Institute for Supply Management showed jumps in price indexes.
Job openings in November unexpectedly rose.
Initial jobless claims unexpectedly fell to an 11-month low.
The big event came on Friday, when non-farm payrolls jumped more than forecast to their highest level since March. Unemployment surprised to the downside, suggesting the labor market is healthy.

Those headlines sent the yield on the 10-year Treasury to its highest level since November 2023. That was a key moment in the past when the Fed turned dovish and the stock market began a rally to new highs. Has more than a year of optimism about inflation and interest rates ended?

Tech Reverses

Technology stocks started last week on a positive note but failed to hold. Nvidia (NVDA) dropped almost 6 percent after briefly hitting a new record high. CEO Jensen Huang also made negative comments about the commercial prospects of quantum computing. That triggered big selling in stocks like Rigetti Computing (RGTI) and IonQ (IONQ), which have been some of the strongest performers in recent months.

Biggest Gainers in the S&P 500 Last Week

Walgreen Boots Alliance (WBA)
+24%

Constellation Energy (CEG)
+21%

Delta Airlines (DAL)
+13%

United Airlines (UAL)
+12%

Micron Technology (MU)
+11%

Source: TradeStation Data

Palantir (PLTR), another high-flier in tech, also had its biggest weekly drop in almost two years. Are investors losing enthusiasm toward the boom in AI?

Chinese stocks also tumbled last week as the giant Asian country struggles with deflation and a potential banking crisis.

Real estate investment trusts were the single worst-performing sector. Banks, biotechnology and small caps also fell. All those groups are sensitive to higher interest rates.

Energy performed the best as traders braced for the Biden Administration to tighten sanctions on Russian oil. Gold bounced after holding $2,600. Is the precious metal stabilizing after a two-month pullback? Airlines also rallied after Delta Air Lines (DAL) beat estimates and issued strong guidance.

Walgreen Boots (WBA) had its biggest weekly rally in at least 50 years on signs of a potential turnaround. Constellation Energy (CEG) jumped after agreeing to buy Calpine for $16 billion. The deal will make CEG the biggest U.S. power generator, according to Reuters.

California utilities Edison (EIX) and Pacific Gas & Electric (PCG) dropped as wildfires swept the Los Angeles area. Constellation Brands (STZ) had its worst week since the pandemic amid weak demand for Corona and Modelo beer.

Charting the Market

The S&P 500 touched 5,807 last week, its lowest level since the election. The index bounced around its current levels in November and December, which could make traders worry about more selling if support gives way.

Biggest Decliners in the S&P 500 Last Week

Edison International (EIX)
-19%

Constellation Brands (STZ)
-18%

Pacific Gas & Electric (PCG)
-16%

Palantir Technologies (PLTR)
-16%

On Semiconductor (ON)
-16%

Source: TradeStation Data

The index also probed above its earlier high before dropping. The resulting bearish outside week is a potential reversal pattern.

Other indicators may reflect negative price action. Moving average convergence/divergence (MACD) has been dropping and the index has remained mostly below its 50-day moving average.  Last week’s close was also under the low of Christmas week.

Internals could be deteriorating as well: Just 235 members of the S&P 500 are now above their 200-day moving averages, according to TradeStation data. That’s the fewest since November 2023. The number above their 50-day MAs (79) was the least since October 2023. In addition, new 52-week lows have mostly outnumbered new 52-week highs over the last month.

The 10-year Treasury yield will likely remain a big worry for investors. While it ended last week above its high from April, it’s still about 20 basis points below its late 2023 peak near 5 percent. Attention may also focus on the U.S. dollar index, which is back to levels from more than two years ago. Upside in both yields and the greenback typically hurt risk appetite. Both could remain important with big inflation data tomorrow and Wednesday.

The Week Ahead

This week brings key economic data and the start of earnings season. J.P. Morgan also holds a major healthcare conference, which could impact companies in the sector.

The producer price index (PPI) is tomorrow morning. It’s followed by the consumer price index (CPI) on Wednesday. Either could impact interest rates, stocks and expectations about Fed policy.

Wednesday additionally features crude-oil inventories and the first big set of quarterly results from major financials like JPMorgan Chase (JPM), Citi (C), Wells Fargo (WFC) and Goldman Sachs (GS) .

Thursday brings initial jobless claims and retail sales, which cover the holiday-shopping season. Bank of America (BAC), Morgan Stanley (MS) and UnitedHealth (UHS) are some of the big earnings reports.

Housing starts and building permits are on Friday morning, along with results from Schlumberger (SLB).

There’s also a three-day weekend because markets are closed on January 20 for Martin Luther King Jr. Day.

Standardized Performances for ETF mentioned above

ETF
1 Year
5 Years
10 Years

SPDR S&P 500 ETF (SPY)
+23.30%
+82.09%
+185.14%

As of December 31, 2024. Source: TradeStation Data

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