Stocks Selloff
Stocks were hit-hard Wednesday after Federal Reserve Chief Jerome Powell, despite cutting interest rates by 25 basis points, indicated the Fed would lower fewer times next year than previously forecasted. This across the board selloff could create a short-term rally but yesterdays strong selling pressure provides more potential for an extended bearish selloff.
Stock Indicies
The SP500 just registered 13 consecutive days of negative breadth but this current selloff yesterday was quite normal compared to what may lie ahead. Nasdaq new 52 week lows has been increasing since the end of November 2024. During this time the Nasdaq 100 moved higher on much lower market breadth mostly due to the Magnificent 7 stocks still attracting money at their recent highs which is a major divergence warning sign of more potential selling to come. Nasdaq 100 non-tech stocks have sold off much more currently.
The US Dollar
The US Dollar Index or DXY is beginning to top out short-term here at 108 to 109, and forecasted to head lower into next year. The U.S. dollar index has risen 6% plus this year. With many developed countries facing sluggish or shrinking economies, the U.S. economy remains somewhat resilient currently. The US Dollar is also supported by expectations that the Federal Reserve may slow or halt rate cuts following this Wednesday’s FOMC meeting. As a result the Fed is seen as more hawkish compared to other major central banks.
However Wall Street anticipates the dollar will reach its peak soon and begin to decline in 2025, despite its current strength and the favorable economic conditions. While the dollar’s strength remains robust for now a potential U.S. recession could change that. In such a scenario increasing exposure to non-U.S. stocks may be a good move if the dollar weakens alongside economic slowdown.
US Stocks Forecast Outlook
The “Magnificent Seven” tech giants are expected to continue to have a major impact on Wall Street, given their heavy influence on major indices. Their stock prices have been fueled this year by a surge of optimism about AI’s potential and expectations of a more business-friendly regulatory environment, especially with the return of Trump to the White House in January. Tesla’s stock price is up 80% plus boosted by Trump’s election prospects sending its market value past $1 trillion, while Meta’s market capitalization now exceeds $1.5T, and Nvidia has climbed triple digit percentages in 2024.
AI continues to be one of the most dynamic and rapidly evolving sectors, and 2025 is expected to be a crucial year with plenty of opportunities for investors. However given the emerging nature of the technology, accurately forecasting future demand remains challenging. The immense capital required to stay competitive with the tech giants is also a significant concern, and companies will need to demonstrate quick returns on these investments. As with any new innovation the road ahead may be volatile, and some promises may not live up to expectations. Investors should focus on companies with practical real world applications, and strong track records while keeping a close eye on evolving regulatory and supply chain trends.
Alphabet
Regulation continues to loom over Alphabet, with the U.S. Department of Justice suggesting it may seek to break up Google to curb its search monopoly. However, even if Google’s dominance is reduced and it loses its status as the default search engine on major tech devices, its strong reputation in the search market will likely continue to draw users. The company’s recent performance highlights its integration of AI technology, which is driving improvements and increasing user engagement. Advertisers are benefiting from enhanced engagement as well.
Although it’s still early in the AI game, Alphabet’s deep financial resources and growing presence in the cloud sector position it well for future advancements. Google’s cloud offering is now more suited to the AI boom than in previous cycles, where Amazon’s AWS and Microsoft’s Azure led the way. Google’s multi-faceted approach, incorporating AI across various parts of its business, makes it a compelling player. However, as the AI landscape evolves, it’s uncertain who will emerge as the leaders, and an upstart competitor—not regulation—could be the biggest threat to Google’s search dominance.
Amazon
Amazon’s cloud business, AWS, remains the company’s primary growth driver, with revenues up 19%. Companies rely heavily on AWS for their IT infrastructure, and as AI demand surges, the need for computing power will remain high. While this bodes well for AWS, Amazon is also investing heavily in AI to stay competitive, raising concerns about the sustainability of its spending. Revenue growth will need to continue at a strong pace to justify these investments.
Meanwhile, Amazon’s e-commerce recovery is progressing, with margins improving after significant cost-saving measures, including global layoffs. However, consumer caution in the U.S. could pose challenges, as Amazon isn’t the cheapest option, though its Prime membership continues to drive steady recurring revenue.
Apple
Apple’s most valuable asset remains its brand, and the latest iPhone sales figures have exceeded expectations, driven by the rollout of Apple Intelligence features. Innovations on its phones have been slower in recent years, so these new tools could be crucial in spurring upgrades. Apple’s focus on privacy, including efforts to deploy on-device language models, remains a key differentiator.
While growth in its Services segment didn’t meet expectations, this area is set to become a significant profit driver going forward. Higher-margin services like Music and TV, along with the bundling of popular apps, will appeal to consumers, though this growth will depend on continued iPhone sales. Apple faces fierce competition in China from companies like Huawei, and economic challenges worldwide could impact its performance.
Meta
Meta has undergone a significant transformation, slimming down operations while focusing heavily on AI investments. Despite its leaner structure, Meta has maintained its momentum, with daily users growing by 5% in the third quarter. The company’s core AI investments are helping drive user engagement and improve ad performance. While Meta’s continued investment in AI is under scrutiny, it’s seen as a crucial strategy as long as the results follow. However, its bets on generative AI and the metaverse remain speculative, as the technology is still in its early stages and carries more risk.
Meta is well-positioned to capitalize on AI-driven growth, but if revenue doesn’t keep pace with its investments, profit margins could come under pressure, and investor sentiment may shift.
Microsoft
Microsoft is at the forefront of the AI revolution, with its Azure cloud platform benefitting from the growing demand for AI tools. In the last quarter, Azure saw an impressive 34% growth, and while growth may slow slightly, it remains on a strong trajectory. Microsoft’s products and services are ubiquitous across both work and leisure, and its integration of AI into its software stack provides an added benefit.
However, there are risks ahead, particularly in the cloud space, where competition is fierce. Regulatory challenges are also likely as AI technology continues to advance rapidly. Despite these hurdles, Microsoft’s position remains solid, and its expansion into AI promises continued growth.
Nvidia
Nvidia has experienced explosive growth, securing its position as the most valuable company in the world in June. Its dominance in AI and accelerated computing is expected to continue, with projections for triple-digit sales growth and revenue of $129 billion in the coming year. Nvidia’s recent launch of the Blackwell super chip has set the stage for continued momentum, with significant opportunities in data center upgrades, new cloud deployments, and AI infrastructure.
Demand for Nvidia’s products remains insatiable, but supply constraints are emerging as a risk. While competition is expected to intensify, Nvidia’s technological edge and financial strength make it difficult for rivals to dethrone it. Given its impressive track record and massive market potential, Nvidia’s valuation appears reasonable, though there will be pressure to maintain performance given its influence on global investor returns.
Tesla
Tesla’s stock has surged following Donald Trump’s victory in the presidential election, driven by hopes that his policies will favor the EV maker. Musk’s influence in the White House could accelerate regulatory approvals for Tesla’s self-driving technology, but concerns about his focus, given his many business interests, may resurface.
Tesla’s performance has improved, aided by cost-cutting measures and incentives to boost sales, particularly in China. The launch of more affordable models in 2025 should broaden its market reach. While demand for EVs has cooled, Tesla remains a strong player in the market. The company’s solid balance sheet supports its growth, but its high valuation means investors will need to exercise patience as Tesla continues its long-term technological development.
