Investing.com -- The post-election rally in the S&P 500 has been faltering since early December, peaking at a record high on December 6, analysts at Yardeni Research highlighted in a note Tuesday.
The firm outlined four key reasons for the slowdown, ranging from sentiment shifts to valuation challenges.
Momentum and Breadth
Yardeni notes that the market has been dominated by a narrow group of Large-Cap momentum stocks. "Breadth, as measured by the ratio of the S&P 500 equal-weighted to the market-cap-weighted index, has been falling," particularly during December, said Yardeni.
The dynamic is said to indicate that while a few high-performing stocks continue to drive gains, broader market participation has declined.
Recent Performance Trends
Since the December 6 peak, Yardeni observes what they describe as a "widespread pullback rather than a correction." However, they warn that additional challenges for stock investors may arise in January, casting uncertainty on near-term market stability.
Economic Fundamentals
The analysts highlight that regional business surveys from five Federal Reserve district banks point to continued weakness in manufacturing.
"November's national M-PMI might have remained below 50.0 this month," they note, adding that this metric has largely been in contractionary territory since May 2022.
Investor Sentiment
Finally, the firm says sentiment has cooled slightly, with the latest AAII Bull/Bear Ratio falling to 1.11. The percentage of bullish investors dropped to 37.8%, while bears increased to 34.1%. From a contrarian perspective, Yardeni suggests that "less bullishness is a welcome development for those of us who remain bullish."
Looking ahead, Yardeni predicts the Magnificent-7 stocks may continue to outperform in early 2025, but broader market participation is expected to return by spring as Trump’s policies become clearer.