The Nasdaq Composite fell as much as 2.4% today, dragged down by artificial intelligence (AI) and tech stocks. The Dow Jones Industrial Average dropped around 500 points in a holiday-shortened week. Shares of Broadcom, Amazon, and Rivian were significantly lower, with Broadcom down 1.47%, Amazon at 1.45%, and Rivian at 2.78%.
The market’s underperformance is partly due to rising yields. Usually, the final week of the year sees a “Santa Claus rally,” but this year’s gains have been disappointing. The 10-year Treasury yield advanced past 4.60% today, its highest level since May.
Many analysts and investors attribute the sell-off to the growing concern that the Federal Reserve will be less cautious on future interest rate cuts. This has led to a surge in yields, making riskier stocks less appealing. Even though tech stocks have had a great year, their high valuations make them vulnerable to a decline if yields remain elevated.
Analysts point out that a higher discount rate can lead to a lower present value of cash flows, which could further impact the performance of these stocks. Given the holiday-shortened week’s limited scope, today’s move might be less significant than initially thought. However, with elevated yields and growing concerns about interest rates, investors should be cautious about tech stocks in the near future.
Source: https://www.fool.com/investing/2024/12/27/forget-the-santa-claus-rally-artificial-intelligen