The weakness in stocks at the end of the year reveals some nervousness as 2025 approaches. Here’s what three market professionals say.

• Large-cap stocks drove U.S. indexes lower in the final days of 2024.

• Market experts blame growing nervousness on investors recalibrating their expectations for 2025.

• Even if the risk of correction increases, the upward trend is expected to continue next year.

Investors, deprived of an end-of-year recovery, may have to prepare for further periods of disappointment in early 2025, market analysts say.

After U.S. indexes were catapulted to double-digit gains through 2024, momentum faded in the final days of the year. The market struggled at a time when investors typically took advantage of the end-of-year “Santa” rally.

The benchmark S&P 500 index has fallen more than 2% since Thursday, led by a selloff in popular technology names.

“It’s, I think, just a testament to how nervous the market is and ultimately the market is looking for those reasons to pull out,” Gene Munster, managing partner of Deepwater Asset Management, told CNBC on Friday.

There hasn’t been a clear catalyst to push tech investors back, but Munster noted that the market’s euphoria was coming under increasing strain this month. Traders became “spooked” after the Federal Reserve announced fewer interest rate cuts next year, a stance that continues to test market confidence.

With inflationary uncertainty behind the Fed’s new hawkish rhetoric, Munster suggested investors were selling ahead of next month’s release of the Consumer Price Index. The January 15 inflation figure is due ahead of the technology sector’s results, he noted.

“For investors who have enjoyed this journey, looking ahead to next month, it is understandable that we have had this anxiety in the market,” he said.

Wharton professor Jeremy Siegel agreed that January could usher in a reversal for Magnificent Seven stocks as investor optimism is called into question. The market will “flip” in 2025, moving away from technology stocks and potentially leading to lower returns.

“I think there could be some disappointment. Over time, I think the likelihood of a correction next year, defined as a 10% decline in the S&P, increases,” Siegel told CNBC. “I think the main forces that will propel things upward have already been integrated.”

None of this is to say that U.S. stocks won’t continue to rise. According to Munster, technology valuations remain justified, but investors should prepare for pullbacks becoming more frequent.

According to Tom Lee of Fundstrat, the S&P index will still reach 7,000 points in the first half of 2025, even if the next inflation report adds to market nervousness.

“I think investors have been a little nervous since Dec. 18: the FOMC rate decision and the fear that the Fed might not be as dovish as investors previously thought,” the managing partner said in an interview at CNBC.

However, the Fed’s shift in stance has not changed the fundamental tailwinds for 2025, he said, citing expectations for improved CEO confidence and business-friendly policies from the of the Trump administration.

“I think one of the lessons of 2024 is that we’ve seen periods of market oscillation and weakness. We know that investors turn bearish pretty quickly when that happens, but it turns out that all of those periods have proven to be buying opportunities.” Lee said.

Read the original article on Business Insider