Dow Falls Over 600 Points as Year-End Rally Fades

On Monday, Wall Street’s key stock indexes opened significantly lower, marking their lowest points in over a week. The decline was driven by light trading volumes and worries about persistent high Treasury yields, diminishing hope for a traditional strong year-end rally known as the Santa Claus rally.

The Dow Jones Industrial Average plummeted by 650 points, or 1.52%, dropping to 42,340.69 shortly after the market opened. The S&P 500 also faced losses, declining 89.52 points, or 1.51%, to 5,881.32, while the Nasdaq Composite fell 326.47 points, representing a 1.66% drop, bringing it to 19,397.26.

Every sector in the S&P 500 index saw a decline, with the consumer discretionary sector experiencing the steepest losses. Major growth stocks, including Tesla and Meta, witnessed notable decreases, dropping 3.1% and 2.2%, respectively. The semiconductor giant Broadcom lost 3.8%, which contributed to a more than 2% decline in the semiconductor index.

This weakness is not typical, as stock markets generally perform well during the last five trading days of December and the first two days of January, a trend referred to as the Santa Claus rally. Historically, the S&P 500 has seen an average gain of 1.3% during this period since 1969, according to the Stock Trader’s Almanac.

Last week, the S&P 500 closed slightly higher, buoyed by a strong performance earlier in the year that has driven valuations upward. Despite the recent downturn, the index has been in a bull market for over two years and is set to finish its second consecutive year with gains exceeding 20%.

However, some analysts caution that policies proposed by President-elect Donald Trump could be inflationary, contributing to the ongoing rise in Treasury yields. The yield on the benchmark 10-year note was near its highest levels since May 2024, dipping slightly to 4.548% on this particular day.

David Morrison, a senior market analyst at Trade Nation, explained that if these yields remain high, they could pose a significant challenge for equity prices. Investors may prefer the relative safety of U.S. Treasuries, which appear to offer a near-certain 5% return, over the risks associated with stocks, many of which are trading at or near record highs.

The increase in Treasury yields throughout December has pressured both the S&P 500 and the Dow, positioning them for their worst monthly performance since April.

The Dow experienced a drop of over 600 points following its opening bell at the New York Stock Exchange. After a recent cautious meeting from the Federal Reserve, market participants have dialed back their expectations for interest rate cuts in 2025, now projecting the first cut may occur in May of next year, according to the CME Group's FedWatch Tool.

Investors will be paying close attention this week to the ISM manufacturing activity survey for December, as well as weekly jobless claims reports, ahead of a significant employment report scheduled for next week.

Among individual stock performances, Boeing saw a drop of 3.5%, making it the poorest performer on the S&P 500. This decline followed an emergency safety inspection ordered for South Korea’s entire airline operation system after a tragic air disaster involving a Boeing plane.

Cryptocurrency-related stocks also took a hit, with firms like MicroStrategy falling by 5.3%, Coinbase dropping 4.9%, and MARA Holdings down 5%, mirroring a 2.4% decline in bitcoin prices.

As the New Year holiday approaches on Wednesday, trading activity is expected to be subdued, with volume likely remaining low until January 6.

Overall, the number of declining stocks exceeded advancing ones by a ratio of 4.12-to-1 on the NYSE and 3.94-to-1 on the Nasdaq. The S&P 500 recorded no new 52-week highs but noted 11 new lows, while the Nasdaq Composite saw 24 new highs and 66 new lows.

stocks, market, decline