Wall street stumbles on geopolitical tensions and economic shifts

At the close, the Dow Jones Industrial fell by 0.42% to 42,528.36 points. The S&P 500 dropped by 1.11% to 5,909.03 points. The Nasdaq Composite declined by 1.89% to 19,489.68 points.

The Russell 2000 index of medium-sized companies decreased by 0.74% to 2,249.80 points. The VIX volatility index rose by 11.1% to 17.82 points.

"The threats from Donald Trump might have influenced this—he doesn't rule out the use of force to take over Greenland and the Panama Canal. Are investors starting to worry?" wonders Piotr Kuczyński, an analyst at Xelion.

Donald Trump, who will assume office on January 15, was asked at a press conference if he could assure that he won't use violence to gain control over Greenland and the Panama Canal.

I can't assure that when it comes to Panama and Greenland, but I can say this: we need them for economic security, he said. When questioned further, he added, We might have to do something.

The Republican also expressed doubts about Denmark's rights to Greenland. "But even if they have it, they should give it up because we need it for national security. This is for the free world. I'm talking about protecting the free world. You look—you don't even need binoculars—outside and see all the ships from China. You have Russian ships everywhere. We won't allow that," Trump stated.

American analysts see the reasons for the significant declines on Wall Street elsewhere.

"We are dealing with a recalibration of inflation expectations and Federal Reserve interest rate expectations. This caused a slight sell-off in the stock markets following earlier enthusiasm," assessed Tom Hainlin, senior investment strategist at U.S. Bank Asset Management Group.

Despite high valuations, UBS still sees U.S. stocks and parts of the market exposed to artificial intelligence as attractive.

The company predicts that profit growth will drive another year of "focused returns," continuing the leadership of the Magnificent Seven companies (Amazon, Apple, Microsoft, Alphabet, Meta, Tesla, and Nvidia) in 2024.

"The valuations of U.S. stocks are higher than average, but historically valuations have had very little correlation with returns over the next 12 months. Instead, profit growth is greater," wrote David Lefkowitz, Head of CIO U.S. Equities at UBS, in a Monday note to clients. "We believe the bull market remains intact, driven by solid economic growth and corporate earnings," he added.

Analysts believe that Trump's election promises, such as tax cuts, tariffs, and loose regulations, if implemented, could rejuvenate the U.S. economy, although they may increase the risk of rising inflation and slow down the pace of the Federal Reserve's monetary policy easing cycle.

Additionally, if his tariff plans are implemented, they may also trigger a trade war with the U.S.'s main trading partners.

In the first full week of January, investors will await Wednesday's release of the minutes from the Federal Reserve's December meeting and the payroll data from the U.S. labour market for the same month.

Nvidia dropped over 6% after the second-largest publicly traded American company showcased new products and partnerships at the main annual technology conference in Las Vegas. The day before, the company was the leader of gains among tech firms.

Micron Technology gained almost 3% after Nvidia's head, Jensen Huang, said that the chip maker supplies components for the GeForce RTX 50 Blackwell chips.

Uber Technologies declined by almost 1% despite reports of collaboration with Nvidia in autonomous driving technology.

Autonomous driving technology manufacturer Aurora Innovation rose nearly 30% after announcing a long-term partnership with Nvidia and Germany’s Continental to deploy large-scale autonomous trucks.

Tesla's shares fell by 4% after Bank of America downgraded the company's stock to "neutral" from "buy."

Carvana's shares rose by 5% after RBC Capital Markets upgraded the company's stock to "outperform" from "market perform."

Data from Citigroup showed that positions on S&P 500 futures contracts fell from highly bullish levels last week, narrowing the gap compared to the European market exposure.

The number of job openings in the U.S., according to the JOLTS survey, was 8.1 million in November compared to 7.8 million recorded the previous month after an adjustment. It was expected that the number of vacancies would be 7.7 million.

The ISM services activity index in the U.S. rose to 54.1 points in December from 52.1 points the previous month. Analysts expected an index level of 53.5 points.

The U.S. trade deficit in November 2024 amounted to $78.2 billion compared to a $73.6 billion deficit the previous month, after an adjustment. Analysts expected a deficit of $78.3 billion.

In the oil market, WTI contracts for February increased by 0.95% to $99 per barrel, and March Brent futures rose by 0.98% to $103 per barrel.