The S&P 500 index has shown signs of weakness as we progress through December, reflecting a broader trend in the stock market. With the index experiencing a decline of 0.6% in the past week, analysts and investors are keeping a vigilant eye on specific stocks that may be positioned for further declines. This downturn comes following a substantial rally that began after Donald Trump was elected president. Despite the S&P’s struggles, the tech-heavy Nasdaq Composite index managed a slight gain of 0.3%, showcasing the mixed performance across different sectors.
While the S&P 500 and the Dow Jones Industrial Average reflected negative trends, particularly with the latter slipping significantly at 1.8% this week, the technology sector displayed resilience. The contrasting performance indicates that while some sectors face headwinds, others may still be attracting investment. The market’s reaction to external factors, including political events, has been pronounced; Trump’s election has particularly buoyed tech stocks, as investors perceive opportunities in technological advancements and the associated economic implications.
CNBC Pro’s analysis utilizing the 14-day Relative Strength Index (RSI) offers valuable insights into the buying and selling pressure of various stocks. In this scenario, stocks with an RSI above 70 are categorized as overbought, signaling potential corrections, while those under 30 indicate oversold conditions — presenting an opportunity for rebounds. These metrics play a critical role in stock evaluation, especially when investor sentiment and market dynamics are unpredictable.
The “Magnificent Seven” and Noteworthy Stock Picks
Prominent among the overbought stocks this week are key players in the technology sector, including Apple and Tesla, both part of the renowned “Magnificent Seven.” Apple’s RSI stood at a substantial 74, reflecting its robust market position with a year-to-date increase of 28.9%. The renewed endorsements from investment firms like Bernstein and Morgan Stanley underline this optimism. The projection of a sustained growth trajectory for Apple’s services division and anticipated acceleration in iPhone replacement cycles suggests strength despite current overvaluation concerns.
Tesla, driven by both its innovative product line and the political magnetism of its CEO, reported an even higher RSI of 77. This surge in Tesla’s stock post-election points to significant investor enthusiasm, likely fueled by the perceived alignment of the company’s interests with the new administration. Analyst Craig Irwin linked the stock’s performance to Musk’s close relationship with Trump, highlighting how political dynamics can have profound impacts on stock valuations.
However, caution is warranted regarding the technology sector’s trajectory. ServiceNow, another technology firm, reported an RSI of 73, indicating it may also be overbought. KeyBanc’s downgrade of ServiceNow from an overweight to a sector weight rating underscores the importance of addressing potential pitfalls, despite the stock’s impressive growth in 2024. Analysts are cognizant of emerging risks, suggesting that while there are promising growth indicators, ceilings on valuation could soon be reached.
Conversely, the oversold stocks present an intriguing opportunity for investors looking to capitalize on market corrections. The Omnicom Group, with an RSI of 24, exemplifies the challenges certain sectors face, having only achieved a modest 4.4% increase so far this year. Following the announcement of its planned acquisition, Omnicom’s stock struggled, indicating that strategic corporate decisions do not always translate to immediate market confidence. Additionally, giants like Johnson & Johnson and Consolidated Edison are encountering similar oversold conditions, which may suggest investment potential in an otherwise bearish phase.
December’s market trends illustrate the complex interplay between political influences, sector performance, and individual stock evaluations. Appraising both overbought and oversold conditions provides investors with insights that can guide strategic decisions amidst uncertainties. As the S&P 500 navigates these challenging waters, astute investors will need to balance the potential for substantial gains in select stocks, particularly in technology, against the risks of market pullbacks. Analyzing the fundamental strengths and vulnerabilities of these stocks—coupled with external economic factors—will be critical in determining the best course of action as we close out the year and approach 2025.