U.S. markets stumbled Friday, with the Dow dropping 333 points (0.78%), the S&P 500 losing 1.1%, and the Nasdaq Composite falling 1.5%. The selloff was driven by declines in Big Tech stocks, with Tesla (-5%), Amazon, Alphabet, Microsoft, and Nvidia (all down about 2%) leading the losses according to CNN.
Big Tech’s Role in Market Volatility
The so-called “Magnificent Seven”, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, have been instrumental in the market’s 2024 rally, accounting for more than half of the gains this year. However, analysts warn that the market’s heavy reliance on these companies increases the risk of significant downturns when these stocks stumble.
“If a few of these companies fail to meet high expectations, they could pull each other down,” said Keith Lerner, chief market strategist at Truist Wealth. “A more balanced market would be preferable, where strength in other segments could offset potential weakness in mega-cap tech stocks.”
Bitcoin’s Rally Fizzles
Bitcoin, which saw a remarkable late-year rally fueled by optimism around a potentially crypto-friendly administration under President-elect Donald Trump, saw its gains erased. The cryptocurrency dropped to $94,000 on Friday, down from $106,000 earlier this month, as traders moved to take profits.
Treasury Yields and Thin Trading Volume
Treasury yields also rose, with the 10-year yield surpassing 4.6%, drawing some trading away from equities. Thin trading volumes due to the holiday season exacerbated the market’s movements. Historically, this period is known for heightened volatility, as low participation magnifies price swings.
“There’s no significant news driving these dramatic moves,” noted FactSet analysts. “Holiday trading weeks often see outsized reactions due to thin markets.”
A Tradition of Holiday Volatility
End-of-year market swings are not uncommon. Last year, the Dow dropped 500 points on December 20 without a clear catalyst. In 2018, a 10-day stretch saw the Dow fall 4,000 points before bouncing back with a record 1,086-point gain, only to see those gains nearly erased the following day.
Looking Ahead to 2025
Despite recent volatility, experts remain optimistic about the equity market in the coming year. Anthony Valeri, investment management director at California Bank & Trust, advised investors to maintain their stock exposure. “Stocks are still the best investment to protect against inflation,” he wrote, predicting continued outperformance over bonds.
While the year ends with turbulence, markets may stabilize as investors refocus on long-term opportunities in 2025.
Photo: travnikovstudio
