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Wall Street Ends Strong Holiday Week with Broad Sell-Off

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Wall Street’s week ended on a sour note Friday, with major indexes experiencing a broad sell-off that overshadowed gains earlier in the shortened holiday week. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posted losses as investors took profits and adjusted portfolios ahead of the new year.

The Dow Jones Industrial Average fell 333.59 points, or 0.77%, to close at 42,992.21, ending a five-session winning streak that had followed its longest losing run since 1974. The S&P 500 dropped 66.75 points, or 1.11%, finishing at 5,970.84, while the Nasdaq Composite lost 298.33 points, or 1.49%, to end at 19,722.03.

Michael Reynolds, Vice President of Investment Strategy at Glenmede, attributed the losses to profit-taking, stating, “We are more than two years into a strong bull market, so it’s not surprising to see some people rebalancing portfolios.” The decline also interrupted the anticipated “Santa Claus rally,” a seasonal trend where stocks typically rise in the final five sessions of December and the first two sessions of January.

The market was further pressured by rising U.S. Treasury yields, with the benchmark 10-year yield hovering near a seven-month high of 4.63%. Higher yields increase borrowing costs, posing challenges for growth stocks, particularly the “Magnificent Seven” tech giants that have driven much of 2024’s market rally.

Tesla led the group’s declines for a second consecutive day, dropping 5%, while Nvidia, Alphabet, Amazon, and Microsoft all shed over 1.5%. Glenmede’s Reynolds noted that rising rates prompted investors to reassess valuations on these high-growth stocks, potentially seeking better opportunities elsewhere.

All 11 major S&P sectors recorded losses, with the hardest-hit being 2024’s leading sectors—consumer discretionary, information technology, and communication services—which fell between 1.1% and 1.9%.

Despite Friday’s pullback, the major indexes posted weekly gains. The S&P 500 rose 0.7%, the Nasdaq gained 0.75%, and the Dow added 0.36% for the week.

Some stocks bucked the trend. Amedisys surged 4.7% after extending the deadline for its $3.3 billion merger with UnitedHealth, while Lamb Weston climbed 2.6% following activist investor Jana Partners’ push for board changes.

Trading volumes remained below the six-month average due to the holiday-shortened week and are expected to stay subdued until January 6. Investors now shift their focus to the December employment report, scheduled for release on January 10.

 

Global Stock Traders Face Dip-Buying Dilemma After Crushing Selloff

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A massive selloff has unsettled global equity markets, leaving investors uncertain about buying stocks at lower prices. Concerns over the U.S. economy and disappointing tech earnings have cast a shadow over the outlook, potentially leading to further losses. Last week, the S&P 500 dropped nearly 6% from its July peak, while the tech-heavy Nasdaq Composite experienced its first 10% correction since early 2022. Markets in Europe and Asia also plummeted, with Japan’s Nikkei index losing almost 5%.

Investors now face a dilemma: whether to buy during this dip or hold off amid recession fears. Historically, the S&P 500 has fallen an average of 29% during recessions, according to Truist Advisory Services. Additionally, Warren Buffett’s Berkshire Hathaway reported selling half its stake in Apple and increasing its cash reserves, signaling caution.

Mark Travis, portfolio manager at Intrepid Capital, noted that investors are reassessing risks due to high valuations. Despite a strong year driven by AI technology and a resilient economy, the recent selloff has dampened risk appetite. Concerns that the Federal Reserve might be delaying interest rate cuts have led traders to move from high-valued stocks to safer investments like U.S. government bonds.

Some investors, however, view the selloff as a temporary setback and are considering buying opportunities. The S&P 500 and Nasdaq are still up around 12% year-to-date, with Nvidia showing significant gains despite recent declines. Economists found positives in the latest jobs report, and some tech companies, including Apple and Meta Platforms, delivered strong earnings.

Nevertheless, stock valuations remain high by historical standards, potentially leading to further selling. The S&P 500’s valuation has decreased slightly but remains above its long-term average. Market strategist Art Hogan highlighted the market’s tendency to overreact to economic normalization signs, potentially leading to profit-taking.

With limited major economic data releases until mid-August, markets may remain volatile. The Cboe Volatility Index, known as Wall Street’s fear gauge, reached its highest level since March 2023, indicating increased demand for options protection. Additionally, the yield on the benchmark 10-year U.S. Treasury dropped significantly, reflecting expectations of future rate cuts and investor caution.