Dow Drops Over 600 Points as Santa Claus Rally Disappoints

On Monday, Wall Street's stock market indices opened significantly lower, reaching their lowest levels in more than a week. This decline comes amid low trading volumes and concerns over high Treasury yields, which overshadowed the typical end-of-year rally in stock prices.

The Dow Jones Industrial Average fell sharply by 650 points, or 1.52%, dropping to 42,340.69 shortly after the market opened. Similarly, the S&P 500 lost 89.52 points, or 1.51%, bringing it down to 5,881.32, while the Nasdaq Composite tumbled 326.47 points, or 1.66%, to 19,397.26.

All eleven sectors of the S&P 500 faced declines, with consumer discretionary stocks leading the losses. Major growth companies like Tesla and Meta saw their stock values dip by 3.1% and 2.2%, respectively. Other tech firms, like Broadcom, experienced significant drops, with a 3.8% decrease that sent the semiconductor index down by over 2%.

This downturn was unexpected, as stocks usually perform well during the last five trading days of December and the first two days of January — a trend known as the Santa Claus rally. Historically, the S&P 500 has averaged a gain of 1.3% during this period since 1969, according to the Stock Trader’s Almanac.

Last week, the benchmark index made slight gains, benefiting from a strong performance earlier in the year that raised valuations. Despite the slump, the market has remained in a bull market for over two years and is positioned to finish its second consecutive year with over 20% gains.

Nevertheless, some analysts believe that the policies expected from President-elect Donald Trump could lead to higher inflation, causing the yield on the 10-year Treasury note to hover around its highest point since May 2024, settling at 4.548% for the day.

David Morrison, a senior market analyst at Trade Nation, commented, "If yields continue to hold at these levels, this will pose a strong headwind for equity prices. Investors may prefer the relative safety of a near-guaranteed 5% return from U.S. Treasuries over the uncertainty of stocks, many of which are trading at or near all-time highs."

Since early December, rising Treasury yields have pressured the S&P 500 and the Dow, signaling one of the roughest months for both indexes since April.

The Dow experienced a drop of over 600 points after the market opened at the New York Stock Exchange. Furthermore, after a cautious statement from the Federal Reserve in its recent meeting, expectations for a rate cut in 2025 have softened. Currently, analysts project the first rate reduction around May next year, as indicated by the CME Group's FedWatch Tool.

In the upcoming days, investors will keep a close eye on the ISM manufacturing activity survey for December, as well as a weekly report on jobless claims, all leading up to a crucial employment report expected next week.

Boeing's stock was among the hardest hit, falling by 3.5% as the company faced an emergency safety inspection of its entire airline operations in South Korea following the country's worst air disaster in recent history involving a Boeing jet.

In the cryptocurrency sector, shares of MicroStrategy declined by 5.3%, CoinBase dropped 4.9%, and MARA Holdings fell by 5%, reflecting a 2.4% decrease in Bitcoin prices.

As the New Year holiday approaches, trading volumes are expected to stay low, likely continuing until January 6. On the NYSE, declining stocks outnumbered advancing ones by a ratio of 4.12-to-1, and on the Nasdaq, it was 3.94-to-1.

During this turbulent trading session, the S&P 500 reported no new 52-week highs and 11 new lows, while the Nasdaq Composite saw 24 new highs and 66 new lows.

Dow, Yields, Stocks