Market Volatility Hits Wall Street
Equities Take a Hit as Treasury Yields Rise
Wall Street’s main stock indexes plummeted on Monday, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all hitting their lowest points in over a week. The decline was attributed to sparse trading volumes and the looming specter of elevated Treasury yields, casting a shadow over the traditionally strong year-end rally for equities.
Santa Claus Rally Fails to Materialize
The weakness in the market was unexpected, as equities tend to perform well in the last five trading days of December and into the first two days of January, a phenomenon known as the Santa Claus rally. Historically, the S&P 500 has gained an average of 1.3% during this period since 1969.
Growth Stocks Take a Beating
Growth stocks such as Tesla and Meta were among the biggest losers, dropping 3.1% and 2.2%, respectively. Chip company Broadcom also took a hit, falling 3.8% and sending the semiconductor index more than 2% lower.
Treasury Yields Weigh on Equities
The yield on the benchmark 10-year note has been trading near its highest level since May 2024, dipping to 4.548% on the day. According to David Morrison, senior market analyst at Trade Nation, “If yields continue to hold at these levels… this will be a strong headwind for equity prices, as investors choose the relative safety of a near-guaranteed 5% return on funds in U.S. Treasuries, compared with the uncertainty of stocks, many of which are trading at or near all-time highs.”
Market Expectations Shift
The rise in Treasury yields since early December has pressured the S&P 500 and the Dow, setting the indexes on track for their roughest month since April. Markets have toned down their rate-cut expectations for 2025, now expecting the first reduction in May next year, according to the CME Group’s FedWatch Tool.
Economic Data Ahead
Later in the week, investors will scrutinize the ISM manufacturing activity survey for December and a weekly report on jobless claims, ahead of a key employment report due in the following week.
Crypto Stocks Slump
Crypto stocks such as MicroStrategy, Coinbase, and MARA Holdings all fell, tracking a 2.4% slide in bitcoin prices.
Thin Volumes Expected
Trading is expected to be impacted by thin volumes in the run up to the New Year holiday on Wednesday and is likely to remain subdued until Jan. 6. Declining issues outnumbered advancers by a 4.12-to-1 ratio on the NYSE and by a 3.94-to-1 ratio on the Nasdaq.
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