Dow Jones, Nasdaq, S&P 500 weekly preview: Busy week starts with a bang

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Investing.com -- The S&P 500 ended lower on Friday after reaching new intraday records, as investors locked in profits following a strong week highlighted by President Donald Trump’s return to the White House.

The index fell 0.3% to 6,101.24, reversing earlier gains, while the Nasdaq Composite declined 0.5% to 19,954.30. The Dow Jones Industrial Average (DJIA) dropped 140.82 points, or 0.3%, to close at 44,424.25. The losses ended a four-day winning streak for all three major indexes.

Large-cap tech stocks that helped fuel the market’s recent highs retreated, weighing on equities. Nvidia (NASDAQ:NVDA) lost over 3%, and Tesla (NASDAQ:TSLA) slipped more than 1%.

Despite Friday’s pullback, the major indexes recorded their second consecutive week of gains, signaling a recovery in the bull market after December’s decline.

The S&P 500 and Nasdaq each gained approximately 1.7% for the week, while the Dow rose 2.2%. The S&P 500 not only set intraday records but also achieved a new all-time closing high on Thursday.

This week is set to be eventful, with markets focused on monetary policy meetings from both the Federal Open Market Committee (FOMC) and European Central Bank (ECB) for insight into 2025 rate trajectories.

While the Fed is widely expected to hold rates steady, consensus suggests the European Central Bank is likely to implement a rate cut.

“We think the Fed is done cutting rates. With inflation stuck above target, stabilization of the labor data gives the Fed the luxury to remain on hold until there is greater clarity on policy,” Bank of America strategists commented.

For the ECB, BofA expects the bank to cut rates at its next meeting and the one following. However, it projects that the ECB will continue lowering rates to a terminal level of 1.5%, or possibly lower, further widening its policy divergence from the Federal Reserve.

Alongside the policy meetings, investors will also be closely watching the release of preliminary fourth-quarter GDP data and core personal consumption expenditures (PCE), the Fed’s preferred measure of inflation.

Global tech markets in the red amid DeepSeek concerns 

US technology and AI-related stocks extended their Friday losses on Monday after Chinese AI startup DeepSeek sent shockwaves through global markets.

DeepSeek’s latest AI model, which is both cost-efficient and operates on less-advanced chips, has cast doubt on the high valuations of companies like Nvidia (NVDA).

Nvidia’s shares tumbled over 11% in premarket trading, potentially marking one of the largest market value losses for a single company if the decline holds.

Nasdaq 100 futures dropped around 4%, while S&P 500 futures slid 2.4%. In Europe, tech stocks led losses, with ASML Holding NV (AS:ASML) falling more than 7%. The combined market capitalization wipeout for the Nasdaq 100 and Europe’s Stoxx 600 tech index could reach more than $1 trillion if declines persist.

DeepSeek, founded by quant fund chief Liang Wenfeng, has introduced an AI model seen as a strong competitor to the latest offerings from OpenAI and Meta Platforms. Investor Marc Andreessen described it as “one of the most amazing and impressive breakthroughs.”

The app, launched last week, demonstrates its reasoning as it answers user prompts and has quickly risen to the top of Apple’s App Store rankings, with users commending its transparency.

The busiest week of Q4 is upon us

The Q4 reporting season has witnessed a strong start, with 82% of S&P 500 companies surpassing consensus earnings per share (EPS) forecasts and 63% exceeding sales expectations. This performance has been even stronger within the Russell 2000.

There has been slight downward pressure on bottom-up consensus EPS forecasts for the S&P 500, which are now estimated at approximately $273 for 2025.

However, RBC Capital Markets strategists think there is “nothing alarming about the pace of the downward revisions, which still looks mild relative to history for the S&P 500. "

"The stronger US dollar seems likely to keep this pressure on for a while longer, and it’s worth noting that we have been reading a bit about this pressure point in recent earnings calls,” they added.

This week is the busiest week of the Q4 season, with 33% of market cap reporting results, including four of the Magnificent 7 stocks.

Boeing (NYSE:BA) and General Motors (NYSE:GM) are scheduled to release their results on Tuesday, followed by IBM (NYSE:IBM), Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Tesla on Wednesday.

On Thursday, investors will turn their attention to the financial results of Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC), Mastercard (NYSE:MA), and Visa (NYSE:V).

What analysts are saying about US stocks

RBC Capital Markets: “We continue to think that within Large Cap, the broadening out of leadership is supported by valuation and positioning dynamics, but requires investors to start anticipating a better earnings backdrop outside of the Mag 7 names, which so far has proven elusive even with an earnings growth recovery in place among the non-Mag 7 S&P 500 names.”

Morgan Stanley (NYSE:MS): “We favor industries with strong EPS revisions, resilient pricing power and limited policy headwinds. Financials, Media & Entertainment and Software (ETR:SOWGn) stand out on the EPS revisions front.”

Goldman Sachs: “The equity market appears to be pricing some risk of targeted US tariffs, but little risk of retaliatory or universal tariffs.”

“Absent any major policy surprises, we expect earnings growth of 11% in 2025 will drive the S&P 500 to 6500 by year-end.”

Standard Chartered (OTC:SCBFF): “Even a tiny opening of the door to ‘the next move could be a hike’ could have a major impact on asset markets. Money markets currently price in falling or stable rates through 2027. The possibility of hikes could unwind the residual cutting risk that is now priced in, and even have a few bps of hiking priced for mid-2025. We would expect the yield curve to steepen, the dollar to strengthen and equities to sell off, reversing asset market moves of the last two weeks.”