Wall Street’s festive mood took a sharp downturn on Friday, as all three major indexes experienced a broad-based sell-off, affecting even the tech and growth stocks that had fueled the markets’ gains earlier in the week.
At 1:39 p.m. ET, the Dow Jones Industrial Average was down by 0.98%, losing 422.63 points to reach 42,903.17. The index was on track to end its five-session winning streak, following a 10-session decline—its longest losing streak since 1974.
The S&P 500 fell 1.38%, or 83.08 points, to 5,954.51, while the Nasdaq Composite dropped 1.85%, losing 371.34 points to 19,649.01.
This sell-off derailed the much-anticipated Santa Claus rally, a seasonal trend where stocks typically rise during the last five sessions of December and the first two of January. Since 1969, the S&P 500 has gained an average of 1.3% during this period, according to the Stock Trader’s Almanac.
“Today is a reminder that while a Santa Claus rally is statistically likely, it’s by no means guaranteed,” said Steve Sosnick, chief market strategist at Interactive Brokers.
The previous day’s session hinted at weakening momentum, with both the S&P 500 and Nasdaq posting marginal losses to end their multi-session winning streaks.
Rising Yields Weigh on Markets
The uptick in U.S. Treasury yields has been a key concern for investors, with the benchmark 10-year note reaching its highest level in more than seven months in the previous session. On Friday, the yield hovered near that peak at 4.61%.
Higher yields are particularly challenging for growth stocks, as they increase borrowing costs for expansion. This impacted major tech stocks—especially the “Magnificent Seven”—which have been crucial to the market’s 2024 rally. Tesla, Amazon, Microsoft, and Nvidia all saw declines, with Tesla leading the fall, dropping 4.4%.
All 11 major S&P sectors saw losses on Friday, with the biggest declines coming from consumer discretionary, information technology, and communication services—sectors that have been top performers in 2024. These sectors were down between 1.5% and 2.1%.
A Healthy Correction Ahead?
“Tech, which has seen a tremendous run, is now pulling back. This could be the start of a healthy correction, which will become more pronounced in the coming weeks as we transition into the new administration,” said Jay Woods, chief global strategist at Freedom Capital Markets.
Despite Friday’s struggles, the S&P 500 and the other major indexes were on track for weekly gains, with the S&P still around 2.3% below its all-time high of 6,099.97 points, reached on December 6.
Stocks That Defied the Sell-Off
Some stocks managed to buck the downward trend. Amedisys gained 4.7% after the home health service provider and insurer UnitedHealth extended the deadline to finalize their $3.3 billion merger. Lamb Weston climbed 4.1% after a filing revealed activist investor Jana Partners is working with a sixth executive to push for changes at the French fry maker, potentially leading to a board overhaul.
With trading volumes lower than usual due to the holiday season, activity is expected to remain subdued until January 6. Investors are now looking ahead to the December employment report, scheduled for release on January 10, as the next major market-moving event.
