Market disappoints with another loss, no wonder sentiment is weakening

US equity futures suggested that the first trading day of 2025 would snap a four-day losing streak thanks to optimism about tech stocks. It didn’t.

The Dow Jones Industrial Average tumbled almost 152 points, the Nasdaq was down 30, and the S&P 500 lost 13 points, with disappointing sales stats from Tesla weighing on investor sentiment and seeing the car maker’s stock drop the most in more than two years.

While the Magnificent Seven - Apple, Nvidia, Microsoft, Alphabet, Amazon.com, Meta Platforms, and Tesla – were key to market gains in 2024, their dominance may not endure in 2025, although some expect them to continue delivering value.

“This idea that they as a group can trade together and lead the market may falter in 2025,” Lisa Shalett at Morgan Stanley Wealth Management told Bloomberg Television, adding that investors are likely to become more selective.

“We are getting to a part of the cycle where differences in individual company exposures is really going to make a difference,” she said, “whether we’re talking about different exposures to the AI growth story itself, whether we’re talking about exposure to antitrust risks, more recently we’ve had to talk about exposure to a very strong dollar.”

The weak start to the new year’s trading follows the S&P 500’s best two-year run dating back to the late 1990s, but the recent run of losses is already having a negative impact on investor confidence, as revealed by a new reading of the American Association of Individual Investors’ weekly sentiment survey.

Bullish sentiment, tracking respondents who believe stock prices will rise over the next six months, was down 2.4 percentage points in Thursday’s poll. At 35.4% this is the first time in five weeks that this metric was below the historical average of 37.5%. It’s also the lowest level since April 2024 (32.1%).

However, bearish sentiment remained unchanged at 34.2%, the sixth time in seven weeks that it has exceeded the historical average of 31%.

There was a 2.3 percentage point rise in neutral sentiment to 30.2%, below its 31.5% historical average for the 25th time in 26 weeks.

The bull-bear spread (bullish minus bearish sentiment) decreased 2.4 percentage points to 1.3% and is below its historical average of 6.5% for the third time in six weeks.

CBOE’s gauge of Wall Street stock sentiment, the VIX, touched 19 before falling below 18 later.  Readings above 20 indicate mounting concern over near-term volatility.