Markets stumble as Wall Street sells off Big Tech

American flags hang from the front the New York Stock Exchange, right, on April 11, 2024 in New York. (Peter Morgan / The Associated Press)

U.S. stocks ended Friday in the red, closing out a lackluster week despite a year of historic highs.

The Dow was lower by 333 points, or 0.78 per cent, after the closing bell. The S&P 500 lost 1.1 per cent and the Nasdaq Composite was down by 1.5 per cent, after a selloff in Big Tech stocks. Shares of Tesla closed lower by around 5 per cent, while Amazon, Alphabet, Microsoft and Nvidia lost about 2 per cent.

The “Magnificent Seven” group of high-performing tech stocks — Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla — has accounted for more than half of the gains so far this year as they benefit from intense investor focus on ways to play the artificial intelligence boom, according to S&P Dow Jones Indices.

Analysts have long cautioned that the market’s reliance on a handful of names exposes the stock market to potential trouble, should the group stumble.

“If a few of these companies fail to beat an elevated bar for positive surprises, there is a risk they would also fall together,” said Keith Lerner, chief market strategist at Truist Wealth. “I would prefer a broader market, where mega cap growth stocks do well and other segments are also doing well. So if one area falters, another segment picks up the baton.”

Bitcoin’s tremendous late-year rally also fizzled, as traders looked to profit taking. The cryptocurrency had dropped to around US$94,000 by late afternoon on Friday after topping US$106,000 earlier this month on hopes that President-elect Donald Trump will usher in a crypto-friendly administration when he returns to the White House next month.

Treasury yields rose Friday, with the 10-year passing 4.6 per cent, potentially pushing some trading out of equities.

Trading volume was thin due to the shortened holiday week, magnifying any moves. Despite the selloff in equities, there’s really no big news markets are reacting to: Such dramatic market moves have become something of a Christmas week tradition, as buying and selling can have a dramatic effect on stock indexes with most traders on vacation.

Low trading volume can also mean high volatility. With remaining traders opting to take some recently gained profits and stuff them in their pockets, momentum shifted as folks literally and figuratively headed for the exits.

To note: Last year, on December 20, the Dow tumbled 500 points. FactSet analysts said there was “nothing really new” markets were reacting to. On December 15, 2022, the Dow plunged 765 points for no real reason at all. Some market analysts cited “recession fears,” which ended up unfounded. And on December 30, 2019, the Dow sank 200 points. CNN Business’ story noted the day was “relatively devoid of news.”

But the mother of all end-of-year market chaos moments happened in a 10-day stretch to end 2018, when the Dow sank 4,000 points before staging one of the best days on record — a 1,086-point gain — before a roller coaster day the next trading day, which nearly wiped out all those gains.

Looking ahead to 2025, stocks are likely to outperform bonds even after a two-year run of strong performance, said Anthony Valeri, investment management director at California Bank & Trust. “Investors should maintain their equity exposure into the New Year,” he wrote in a note issued Friday. “Stocks are still the best investment to protect against inflation.”