Stocks have slipped into the red today after notching their longest winning streak in two years as investor sentiment softens and several prominent companies miss third-quarter earnings estimates.
While today’s move lower could be a brief pause in a year-end rally, some analysts are wondering if the enthusiasm seen after the Federal Reserve held interest rates steady at the start of November may now be starting to wane. A slate of earnings misses by several prominent companies has also thrown cold water on the market’s recent bull run.
Big Move Higher for Stocks
Today’s dip comes after the S&P 500 and Nasdaq Composite indices recorded their longest winning streaks in two years as investors bet that the Fed is now done raising interest rates. The benchmark S&P 500 and technology-laden Nasdaq each rose for seven consecutive trading sessions, their longest win streaks since Nov. 8, 2021. The Dow Jones Industrial Average also posted gains for seven straight trading sessions. This has been its longest win streak since July of this year, when it rose for 13 consecutive trading days.
Prior to today, the S&P 500 was up 15% on the year, while the Nasdaq had gained 31% and the Dow rose 3%. The bull run over the past week was a sharp reversal for U.S. equities, which had declined for three consecutive months between August and October, pushing the S&P 500 and Nasdaq into a correction, which is defined as a 10% decline from recent highs. Investor sentiment towards stocks turned favorable after the Fed left interest rates unchanged, and the yield on the 10-year Treasury bond fell back below 5%.
Futures markets are now betting on four interest rate cuts by the Fed in 2024, with the first occurring in May of next year. Some analysts say U.S. markets are now in the early innings of a “Santa Claus rally,” which is when stocks rise in the final months of the year.
Earnings Miss Their Target
Dampening investor sentiment has been a series of earnings misses by some widely followed companies. Shares of entertainment giant Warner Bros. Discovery (NASDAQ:WBD) are down 17% today after posting declining revenue. The stock of online trading platform Robinhood(NASDAQ:HOOD) is down 15% after announcing a drop in trading volume. And e-commerce company eBay (NASDAQ:EBAY) is down nearly 5% after issuing weak guidance for the current fourth quarter.
At the same time, declining prices for crude oil, which has fallen below $80 a barrel, is dragging energy stocks lower. Small-cap stocks are also showing some weakness, with the Russell 2000 index down 2% over the last month and down 14% from a peak it reached in July of this year. Additionally, a recent report from the Federal Reserve Bank of New York noted that credit card debt in the U.S. has reached a record $1.08 trillion, which could weigh on consumer spending going forward.
What’s Next
It’s hard to tell if the softness in the market today is the result of investors and traders taking a breather after a big run over the last week or an indication of something worse, such as a bear market rally. Time will tell where we stand. But for now, investors would be smart to keep a close eye on equities and watch for signs of continued weakness.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
