U.S. stocks ended Christmas week with retracements of strong double-digit gains, driven by profit-taking in thinly traded markets heading into the final weekend of 2024.
Despite a slight decline on Friday, the U.S. dollar was set for an almost 7% annual gain. This reflects expectations of robust U.S. growth alongside tax cuts, tariffs, and deregulation under President-elect Donald Trump, which could make the Federal Reserve cautious about further rate cuts into 2025.
“The Santa Claus rally came a bit earlier this year, and I think this is profit-taking ahead of another holiday-shortened week next week,” said Jeff Schulze, head of economic and market strategy at Clearbridge Investments. “It’s not uncommon for the market to hit air pockets when the volumes are light.”
High-flying stocks like Tesla, Amazon, Microsoft, and Nvidia led the decline, with Tesla sliding 4.9%. The S&P 500 fell 1.11% but still recorded a 0.67% weekly gain. The Nasdaq Composite dropped 1.49%, while the Dow Jones Industrial Average slipped 0.77%.
For 2024, the Dow gained 14%, the S&P 500 rose 25%, and the Nasdaq climbed 31%.
“I’ve heard anecdotes that pension funds are rebalancing ahead of year-end, selling stocks and buying bonds,” said Steve Sosnick, chief market strategist at Interactive Brokers. “If large funds are selling stocks en masse, the megacap tech stocks would bear the brunt because of their heavy weighting in major indices.”
Global markets also saw mixed performance. MSCI’s global index fell 0.59% on Friday but gained 1.45% for the week. Europe’s Stoxx 600 rose 0.67% on Friday, marking a 1% weekly gain, while Japan’s Nikkei climbed 1.8%.
“The inauguration day is a potential inflection point, and all the good news will be in the price by then,” noted Luca Paolini, chief strategist at Pictet Asset Management.
Meanwhile, the dollar index showed a 6.6% annual gain. The Bank of Japan’s reluctance to hike rates weighed on the yen, while the Federal Reserve signaled caution on further rate cuts. Economists view Trump’s proposed policies as both pro-growth and inflationary, adding complexity to the global economic outlook.