The Dow Jones Industrial Average experienced a significant decrease of 475.92 points, marking the end of a nine-day winning streak and halting the push towards an all-time closing high for the S&P 500. The decline occurred after a strong year-end rally lost momentum, leading to concerns about overbought market conditions. Despite the pause, experts anticipate a resumption of the rally due to the tailwinds of the Federal Reserve’s more dovish pivot and the headwinds of high valuations and a slowing economy. As the market takes a breather, investors remain hopeful for a festive bounce during the “Santa Claus rally” period.

Market Reaction

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Dow Jones ends 475 points lower after 9-day winning streak

The Dow Jones Industrial Average (DJIA) experienced a significant decline, closing 475.92 points, or 1.3%, lower at 37,082. This decline puts an end to the Dow Jones’ nine-day winning streak and record finishes.

Traders end sharply lower Wednesday after failing to maintain holiday cheer

Traders experienced a sharp decline in the market on Wednesday, failing to maintain the holiday cheer that had been driving the market in recent days. This decline marks a pause in the market’s rally and reflects a more cautious sentiment among investors.

Stock Indexes Performance

Dow Jones Industrial Average (DJIA) down by 475.92 points, or 1.3% at 37,082

The Dow Jones Industrial Average (DJIA) saw a decline of 475.92 points, or 1.3%, closing at 37,082. This decline comes after a nine-day winning streak, signaling a pause in the market’s upward momentum.

S&P 500 (SPX) closed lower by 70.02 points, or 1.5%, at 4,698.35

The S&P 500 (SPX) also experienced a decline, closing lower by 70.02 points, or 1.5%, at 4,698.35. This decline puts a halt to the S&P 500’s push towards an all-time closing high.

Nasdaq Composite (COMP) finished down by 225.28 points, or 1.5%, at 14,777.94

The Nasdaq Composite (COMP) saw a decline of 225.28 points, or 1.5%, closing at 14,777.94. Similar to the Dow Jones and S&P 500, the Nasdaq’s decline reflects a pause in the market’s recent rally.

Previous Records and Rally Momentum

Dow Jones had fifth straight record close after 9 consecutive days of gains

Despite the recent decline, it is important to note that the Dow Jones had achieved its fifth straight record close after nine consecutive days of gains. This demonstrates the market’s strength and resilience leading up to the decline.

S&P 500 closed at its highest level since Jan. 4, 2022

Before the decline, the S&P 500 had closed at its highest level since January 4, 2022. This indicates the strong performance of the market prior to the pause in the rally.

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Nasdaq also scored ninth straight session of advances

Similar to the Dow Jones, the Nasdaq Composite also achieved a ninth straight session of advances before the decline. This further highlights the positive momentum in the market leading up to the pause.

Reasons for Market Decline

Overbought market conditions lead to pause in rally

One of the key reasons for the market decline is the overbought conditions in the market. After a period of significant gains, the market needed to take a pause to readjust and reevaluate its next move.

Drop in Treasury yields and hesitant investor reaction

The drop in Treasury yields also contributed to the market decline. Additionally, investors seemed hesitant to react to the drop in yields, leading to a more cautious sentiment in the market.

Expectation of rally to resume after pause

Despite the market decline, there is an expectation that the rally will resume after this pause. The strong performance leading up to the decline suggests that this is just a temporary setback and not a reversal of the overall market trend.

Market Outlook and Potential Headwinds

Strong market performance driven by Fed’s dovish pivot and high valuations

The strong market performance in recent days has been driven by the Federal Reserve’s dovish pivot and high valuations. The Fed’s more accommodative stance has provided support to the market, while high valuations have attracted investors seeking growth opportunities.

Economy slowing down and consumer spending expected to decrease

Looking ahead, there are potential headwinds for the market. The economy is slowing down, and there are expectations of a decrease in consumer spending in the coming quarters. These factors could impact the market’s performance in the near future.

Historical optimism for festive bounce during Santa Claus rally period

However, there is historical optimism for a festive bounce during the Santa Claus rally period. This period, which stretches from the last five trading days of the year through the first two trading days of the new year, has historically seen gains in the market. Investors will be watching closely to see if this trend continues.

U.S. Economic Data

Existing-home sales rose 0.8% in November to 3.82 million

In recent U.S. economic data, existing-home sales rose by 0.8% in November to 3.82 million. This indicates a slight increase in sales, potentially driven by easing mortgage rates and increased demand from prospective home buyers.

U.S. consumer-confidence index rose to highest level in December

The U.S. consumer-confidence index rose to its highest level in December, reaching a five-month high of 110. This increase shows optimism among consumers and could potentially drive increased spending in the future.

Upcoming Q3 GDP revision and personal-consumption expenditures inflation report

Looking forward, there are key economic reports to watch, including the upcoming Q3 GDP revision and personal-consumption expenditures inflation report. These reports will provide further insight into the state of the economy and potential future market trends.

Stocks in Focus

FedEx Corp. (FDX) shares dropped 12% after sales forecast trimming

Shares of FedEx Corp. (FDX) experienced a significant drop of 12% after the company trimmed its sales forecast. This decline reflects concerns about subdued shipping demand during the peak holiday season.

Tesla Inc. (TSLA) shares ended 3.9% lower due to cuts in merit-based grants

Tesla Inc. (TSLA) saw a decline of 3.9% in its shares, which can be attributed to the company’s decision to cut out merit-based grants from employee-compensation packages. This decision may have raised concerns among investors.

Alphabet Inc. (GOOGL) shares closed up 1.2% on Google unit’s advertising-sales unit reorganization

Alphabet Inc. (GOOGL) experienced a 1.2% increase in its shares following a reorganization of its Google unit’s advertising-sales unit. This reorganization may have positively impacted investor sentiment.

General Mills Inc. (GIS) shares ended down by 3.6% on missing revenue expectations

General Mills Inc. (GIS) saw a decline of 3.6% in its shares after missing revenue expectations. This decline reflects concerns about the company’s performance and may have led to a decrease in investor confidence.

Investment Insights

Opportunity for investors to take advantage of year-end rally

Despite the recent market decline, there is still an opportunity for investors to take advantage of the year-end rally. The market has shown strength and resilience in recent days, and there is optimism for a festive bounce during the Santa Claus rally period.

Potential market leaders in 2024

Looking ahead to 2024, there are potential market leaders to watch. These leaders may emerge in various sectors and industries, and investors should carefully evaluate potential investment opportunities.

Inflation as a driving force for stock market next year

One key factor to consider in the coming year is inflation. Inflation can have a significant impact on the stock market, and investors should monitor inflation trends and potential consequences for their investment portfolios.

About the Authors

Vivien Lou Chen, Markets Reporter for MarketWatch

Vivien Lou Chen is a Markets Reporter for MarketWatch. With her expertise in the financial markets, she provides valuable insights and analysis of market trends and events.

Isabel Wang, Markets Reporter for MarketWatch

Isabel Wang is a Markets Reporter for MarketWatch. Her reporting focuses on market developments and trends, providing investors with the information they need to make informed investment decisions.

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