Following significant declines last Friday, the U.S. stock market continued to face a sell-off storm after the opening on the evening of December 30, Beijing time, with all three major indexes falling across the board. As of 23:00 Beijing time, the Dow Jones Industrial Average (DJIA) fell 1.59%, the Nasdaq Composite Index (NASDAQ) dropped 1.89%, and the S&P 500 Index also fell by 1.66%. This series of declines not only caught investors off guard but also raised concerns about future market trends. Affected by the plunge in U.S. stocks, the cryptocurrency market also declined, with BTC nearly falling back to the 8,000 range!
In this wave of sell-off, the performance of the 'Seven Tech Giants' in the U.S. stock market is particularly noteworthy, collectively showing a weak trend. Tesla's stock price fell by over 2%, while tech giants like Apple, Microsoft, Google, Amazon, and Meta all dropped more than 1%. Although Nvidia's decline was smaller, it also could not escape, falling by 0.3%. This series of declines not only reflects market concerns about tech stock valuations but also signals that the tech sector may face greater adjustment pressure in the future.
Meanwhile, U.S. chip stocks also could not escape the fate of a sharp decline. The Philadelphia Semiconductor Index dropped more than 2%, with chip manufacturers like Broadcom, Micron Technology, and ON Semiconductor seeing declines of over 3%. Other chip giants like Marvell Technology, Intel, and ASML also followed suit with declines exceeding 2%. The collective drop in chip stocks further intensified market worries regarding the tech sector.
In addition to tech and chip stocks, quantum computing concept stocks also generally fell. Quantum's stock price plummeted by over 18%, while companies in the quantum computing sector like Microcap Hologram and Rigetti Computing saw stock prices drop by over 14%, and D-Wave Quantum even fell by over 10%. This series of declines not only caused significant losses for investors in quantum computing concept stocks but also raised concerns about the entire high-tech sector in the market.
In terms of individual stocks, Boeing's share price also suffered a sharp decline. It fell more than 5% at one point during the session and remained close to a 4% drop as of 23:00 Beijing time. This decline is related to the South Korean Ministry of Land, Infrastructure and Transport announcing a comprehensive special inspection of the 101 existing Boeing 737-800 aircraft in the country. Additionally, the U.S. National Transportation Safety Board stated that a team composed of experts from Boeing and American aviation agencies is heading to South Korea to assist in the investigation of the accident involving an aircraft at the airport. This incident undoubtedly put greater pressure on Boeing's stock price.
Meanwhile, Chinese concept stocks and China-related ETFs also adjusted alongside the broader U.S. market. The Nasdaq Golden Dragon China Index fell 1.7%, while the 3x long FTSE China ETF (YINN) and 2x long China Internet Stocks ETF (CWEB) dropped more than 3%. The China Technology Index ETF (CQQQ) also fell by more than 1%. Among popular Chinese concept stocks, companies like Kingsoft Cloud and Xpeng Motors saw significant declines, with Tiger Brokers and Fangdd also showing downward trends. This series of declines not only caused severe losses for investors in Chinese concept stocks but also raised concerns about the future trends of Chinese assets in the market.
So, what exactly caused this round of sell-off in the U.S. stock market? Analysts point out that although there have been no significant economic data or news driving the substantial decline in the U.S. stock market recently, investors have begun to worry that the U.S. stock market may be losing its upward momentum. Since the beginning of this year, U.S. tech giants have surged across the board, pushing the S&P 500 index to new highs repeatedly. However, as stock prices continue to rise, more and more investors are beginning to worry that U.S. stock valuations have become outrageous and that the bubble will inevitably burst.
Simeon Hyman, a strategist at investment consulting firm ProShares Advisors, pointed out in a recent report that U.S. stock valuations are high. At the current level of U.S. Treasury yields, the historical price-to-earnings ratio of a stock typically ranges between 18 and 20 times, but currently, this ratio hovers around 25 times. This data undoubtedly exacerbates investors' concerns about the valuation of the U.S. stock market.
Additionally, other indicators also show that the valuations in the U.S. stock market have reached historically extreme levels. According to the Shiller cyclically adjusted price-to-earnings ratio (CAPE), the valuation of the S&P 500 is nearing levels seen during the internet bubble of 2000. Historically, when CAPE exceeds 30 times, there has always been a market correction of 20% to 89%. Moreover, Warren Buffett's 'total market capitalization/GDP' ratio has already far exceeded the warning line. These indicators all suggest that the U.S. stock market may face tremendous adjustment pressure.
Despite the high valuations, Hyman believes that the low level of market debt can reduce the risks associated with high price-to-earnings ratios. Compared to twenty years ago, the net debt/EBITDA (earnings before interest, taxes, depreciation, and amortization) of the S&P 500 has decreased from 5 times to 1 time. This data indicates that although U.S. stock market valuations are high, the debt level is relatively low, which reduces market risk to some extent.
However, despite Hyman's attempts to find reasonable explanations for the high valuations in the U.S. stock market, investor concerns have not dissipated. The continued surge of U.S. stocks this year has made investors increasingly uneasy, even drawing the attention of heavyweight figures on Wall Street, including David Einhorn. This billionaire hedge fund manager recently warned that traders are driving the most expensive market in decades.
Kaplan, the CEO of the True Contrarian blog and newsletter, bluntly stated that the tech bubble in the U.S. stock market is now larger, and the current bear market may have already begun. This view undoubtedly intensifies investors' worries about the future trends of the U.S. stock market.
Looking ahead to 2025, analysts believe that the trends in the U.S. stock market will depend on the combined influence of multiple factors. If U.S. tech giants can maintain high earnings growth expectations, then the market may still have room for upward movement. However, once economic data or policy expectations change, the valuation of U.S. stocks may undergo a sharp adjustment. Therefore, investors need to closely monitor market dynamics and changes in the economic situation to formulate reasonable investment strategies.
It is worth noting that Bank of America pointed out in a recent report that considering the current combination of 'Trump 2.0' policies and the AI revolution will lead to risk accumulation, the expected price-to-earnings ratio of the S&P 500 exceeding 25 indicates overvaluation, and the volatility shown by the VIX index indicates market fragility, the bubble in 2025 may burst and be difficult to avoid. This view undoubtedly serves as a wake-up call for investors, reminding them to approach investment opportunities and risks in the U.S. stock market more cautiously.
In summary, after experiencing a sell-off storm recently, investors' anxiety about the U.S. stock market has been steadily increasing. Although some analysts are trying to find reasonable explanations for the high valuations in the U.S. stock market, investors still need to remain vigilant and closely monitor market dynamics and changes in the economic situation. In future investments, investors need to pay more attention to diversification and risk control to cope with potential market fluctuations and risk challenges.