Market Recap: Wall Street Slips as ‘Magnificent 7’ Weighs Down Indexes
Major Indexes Close Lower Amid Year-End Trading
On Friday, December 27, 2024, Wall Street experienced a significant downturn as the major stock indexes closed lower, marking a pause in the holiday-shortened week’s upbeat performance. The sell-off was primarily driven by weakness in tech and growth stocks, particularly the ‘Magnificent 7’ that have been the market’s powerhouses throughout the year.
The Dow Jones Industrial Average fell 333.59 points, or 0.77%, to close at 42,992.21. The S&P 500 dropped 66.75 points, or 1.11%, ending the session at 5,970.84. The tech-heavy Nasdaq Composite saw the largest decline, shedding 298.33 points, or 1.49%, to finish at 19,722.03.
Tech Giants Lead the Decline
The ‘Magnificent 7’ stocks, which have been instrumental in driving market gains throughout 2024, faced significant selling pressure:
1. NVIDIA Corporation (NVDA) fell 2.09% to $137.01
2. Tesla, Inc. (TSLA) plummeted 4.95% to $431.66
3. Apple Inc. (AAPL), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), Amazon.com, Inc. (AMZN), and Meta Platforms, Inc. (META) all experienced declines
Adam Turnquist, Chief Technical Strategist for LPL Financial, commented, “Big tech is taking a much-deserved holiday break after doing most of the heavy lifting for the broader market since Election Day. The Magnificent Seven has contributed to around 85% of the S&P 500’s +4% gain since November 5.”
Market Breadth Weakens
The selling pressure extended beyond the mega-cap tech stocks, with over 90% of S&P 500 constituents trading in the red. This widespread decline suggests a broader market weakness as the year comes to a close.
Factors Influencing the Market
Several factors contributed to the day’s negative performance:
1. Profit-taking: Investors are capitalizing on gains from a strong year in the markets.
2. Tax considerations: Year-end tax selling is influencing trading decisions.
3. Thin trading volume: Holiday-shortened week led to exaggerated price movements.
4. Uncertainty about 2025 policies: The upcoming change in administration has created some market anxiety.
Treasury Yields and Economic Outlook
The 10-year U.S. Treasury yield reached 4.641% earlier in the week, its highest level since early May. This surge reflects growing market sentiment that the Federal Reserve may continue to decrease interest rates into 2025, albeit at a slower pace than previously anticipated.
Looking Ahead: Market Events and Expectations
As we approach the new year, market participants are closely watching several key factors:
1. Federal Reserve policy: Investors are anticipating the Fed’s approach to interest rates in 2025.
2. New administration policies: The market is preparing for potential policy changes under the incoming government.
3. Economic indicators: Upcoming reports on pending home sales, construction spending, and manufacturing activity will be crucial for assessing economic health.
Expert Insights
Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, noted, “There’s uncertainty about the direction of interest rates and inflation, and the fact of all this is sort of coming together at one time. What is the Federal Reserve going to do in the first part of next year?”
Peter Tuz, President of Chase Investment Counsel, added, “This is end of year stuff going on. People have had a pretty good year, and it’s typical year-end selling pressure caused by people taking profits, not a lot of buyers out there and not a lot of volume.”
Conclusion
While the market experienced a setback on December 27, 2024, it’s important to note that the major indexes are still on track for impressive yearly gains. The S&P 500 is poised for an annual increase of around 25%, marking its second consecutive year with gains exceeding 20% – a feat not seen since 1997-1998.
As we move into 2025, investors will be closely monitoring how the market adapts to new economic policies, potential shifts in Federal Reserve strategy, and the performance of key sectors beyond the dominant tech giants. The interplay between these factors will likely shape the market’s trajectory in the coming months.
