Wall Street’s major stock indexes experienced a sharp decline on Monday, reaching their lowest levels in over a week. Sparse trading volumes and elevated Treasury yields contributed to the market’s struggles, overshadowing the typically robust year-end rally known as the “Santa Claus rally.”
Market Performance
At 9:57 a.m. ET, the key indices showed significant losses:
- Dow Jones Industrial Average fell by 651.52 points (1.52%) to 42,340.69.
- S&P 500 dropped 89.52 points (1.51%) to 5,881.32.
- Nasdaq Composite lost 326.47 points (1.66%) to 19,397.26.
All 11 sectors of the S&P 500 reported losses, with consumer discretionary stocks leading the decline. Growth stocks were particularly hit hard, with Tesla and Meta falling 3.1% and 2.2%, respectively. Chipmaker Broadcom dropped 3.8%, pulling the semiconductor index down by over 2%.
Atypical Santa Claus Rally
The decline went against the usual pattern of stocks performing strongly during the final five trading days of December and the first two days of January, a period commonly called the Santa Claus rally.The Stock Trader’s Almanac notes that since 1969, the S&P 500 has averaged a 1.3% gain during this period.
Although the S&P 500 managed modest gains last week, elevated valuations from strong earlier performance have raised concerns among analysts. The index has remained in a bull market for over two years, achieving over 20% growth for two years in a row.
Treasury Yields and Inflationary Concerns
The yield on the benchmark 10-year U.S. Treasury note, a key barometer for market sentiment, dipped slightly to 4.548% on Monday but remains near its highest levels since May 2024. Higher yields typically present a challenge for equities as investors gravitate toward the relative safety of bonds offering near-guaranteed returns.
David Morrison, senior market analyst at Trade Nation, highlighted the impact of these high yields, stating, “If yields continue to hold at these levels, they will act as a strong headwind for equity prices.”
Federal Reserve Policy and Rate Expectations
Recent Federal Reserve decisions have tempered market expectations for interest rate cuts in 2025. Investors now expect the first interest rate cut to occur in May 2025, based on the CME Group’s FedWatch Tool.
Economic Reports in Focus
Later this week, investors will pay close attention to several important economic indicators, including:
- ISM manufacturing activity survey for December.
- Weekly jobless claims report.
- A critical employment report expected the following week.
Company-Specific News
Among the worst performers was Boeing, whose shares declined 3.5% following South Korea’s announcement of an emergency safety inspection of its airline operations. This decision came after the country experienced its worst air disaster over the weekend involving a Boeing plane.
Conclusion
The combination of elevated Treasury yields, muted trading volumes, and inflationary concerns has disrupted Wall Street’s usual year-end rally. As investors navigate these challenges, upcoming economic data and Federal Reserve policy updates will remain central to market dynamics.