Market Declines, Bond Yields Soar: Key Insights for the Week Ahead

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

The major U.S. stock indexes fell around 2%, recording their second weekly decline in a row as investors worried about a potential slowdown in the pace of interest-rate cuts.

It was the fourth negative week out of five for the S&P 500, which finished down more than 4% from a record high set on December 6.

Small-cap stocks underperformed their large-cap peers for the fifth week in the past six weeks, as the Russell 2000 Index dipped into correction territory on Friday morning. As measured by Russell 1000 indexes, value stocks held up better than their growth counterparts. The Nasdaq Composite fell 2.34%, its biggest weekly drop since mid-November.

The price of U.S. crude oil rose for the third week in a row, climbing to nearly $77 on Friday. Over that three-week stretch, the price was up more than 10%.

Gold futures rose for the second week in a row, reaching around $2,717—less than 3% shy of the record level reached two and a half months ago.

Although the jobs reports were positive last week, the reaction in the financial markets was largely negative.

This was in part because markets are reassessing the need for further central-bank rate cuts. In fact, according to the CME FedWatch tool, markets now expect just one more Fed rate cut in 2025, in the July timeframe, which would bring the fed funds rate to 4.0%–4.25%.

As a result, government bond yields moved sharply higher, especially short-term government yields, which tend to be more driven by central-bank policy rates.

The higher yields weighed on stocks, particularly those parts of the market with the highest valuations. In the U.S. markets, the technology-heavy Nasdaq underperformed, while defensive parts of the market like utilities and health care held up better.

The uncertainty around which policies from the new pending administration are prioritized, and in what order, may continue to remain an overhang on markets. If the administration focuses on some of the more potentially inflationary policies first, like tariffs and immigration reform, this could be more disruptive for markets. However, if these are balanced with pro-growth initiatives like deregulation and tax cuts, we could also see a more balanced outcome in markets. Overall, though, the removal of this policy uncertainty alone may be welcomed by the markets, regardless of the initiatives that are prioritized.

Regardless of which party is in power, stock markets usually do well over a new four-year presidential cycle. In fact, the S&P 500 has averaged a gain of over 10% in the first year of that cycle.

In any case, as usual, we will be Trading What We See Technically, Not What We Think.

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