Technology giants are shut down, will the year-end rally in the US stock market be suspended?

On Monday, U.S. stocks weakened again, raising doubts as to whether U.S. stocks can continue to strengthen during what is typically the strongest period of the year. The main issue lies with the surging technology stocks, which have been the driving force behind the S&P 500's 34% rally since its low in April. However, these heroes are now experiencing a stagnation in their momentum, leaving the market to rely on other sectors that are more susceptible to signs of economic slowdown and weakening consumer confidence. The S&P 500 index fell 0.9% on Monday and has experienced a 2.5% decline for the month of November so far. Data shows that the index has not hit a new high for 14 consecutive trading days, which is concerning, especially since this is the longest stretch without a new high since the 88-day period from February to June. The "Big Seven" technology stocks have contributed nearly all of the market's gains this year, but this group has declined by nearly 5% this month, with only Alphabet Inc. (GOOGL.US) maintaining an increase. The artificial intelligence trading frenzy is beginning to waver, mainly due to investors' concerns about the significant borrowing required for its development becoming a burden. Just on Monday, Amazon.com, Inc. raised $15 billion through a bond sale in the credit market. The economy is showing signs of slowing down, especially in the labor market, and lower-end consumers seem to be facing increasing pressure. With warning signs from technical indicators, such as both the S&P 500 and Nasdaq 100 indexes closing below their 50-day moving averages, Wall Street strategists are questioning whether a year-end rally is still possible. "We are running out of time," said Adam Tonquiest, Chief Technical Strategist at LPL Financial, adding that the year-end rally typically starts in early November, rather than seeing a pullback in mid-month. As key indices fall below critical chart levels, he believes "there is more pain ahead." The remaining time this week is crucial for any attempts to return to historical highs. Consumer giants such as Walmart Inc. (WMT.US), Home Depot, Inc. (HD.US), and Target Corporation (TGT.US) will report earnings and provide forecasts for the upcoming holiday shopping season. NVIDIA Corporation (NVDA.US) is the last of the "Big Seven" companies to release its earnings. Additionally, government economic data that has been missing for the past seven weeks will begin to be released. However, for some analysts, the S&P 500 index may have already hit its last high of the year. John Roque, Technical Analysis Director at 22V Research, said some "ugly" technical signals are causing concern. This includes the number of Nasdaq Composite Index component stocks hitting 52-week lows exceeding those hitting 52-week highs. He stated, "A market where the number of stocks hitting new lows exceeds those hitting new highs is unlikely to rally." Furthermore, he believes Meta Platforms (META.US) is a "barometer" of this pullback, as the giant began falling earlier than its peers and may "hit bottom" before the current market downturn ends. Investors are concerned about Meta's massive spending plans in artificial intelligence, worrying that these investments will take time to yield profits. Meta's stock fell 1.2% on Monday and is currently down 24% from its peak in August. Tonquiest noted that investors are shifting funds not only away from large tech stocks but also from unprofitable tech companies, Bitcoin, meme stocks, and heavily shorted stocks, as a "defensive tone is emerging in the market." The rotation out of these high-risk areas into more defensive corners of the market began last week. The healthcare sector has been the best-performing sector in the S&P 500, benefiting the most from the outflow of funds from high-momentum sectors, according to Tonquiest. "The U.S. momentum factor is currently hovering near its support levels of the past few months and teetering on the edge of collapsing," said Emily Roland and Matt Miskin, Co-Chief Investment Strategists at John Hancock Investment Management. They warned that the market's trend over the past week appears to be a return of the "sell America" trade from April. One thing is for certain, even without the usual holiday rally, 2025 could still be a bountiful year for the stock market. The rotation continued on Monday, with the healthcare and utilities sectors outperforming the broader market. "This rotation should help deflate some of the bubbles that have been building in growth sectors," said Sam Stovall, Chief Investment Strategist at CFRA. While the market has been volatile over the past two weeks, Stovall believes, "we are far from reaching a level that can be called a 'pullback' at the moment." Likewise, Ned Davis Research described the recent sell-off as "sufficiently controlled," allowing for the possibility of further gains, but warning that "the longer the consolidation period without re-establishing an upward trend, the higher the risk of it evolving into a topping process."