Dow Drops Over 500 Points as Big Tech Takes a Hit

US stocks faced a significant drop on Friday, marking a turbulent end to a week that contrasts sharply with a year filled with impressive highs.

The Dow Jones Industrial Average fell by approximately 450 points, translating to a 1% decrease in early afternoon trading. The S&P 500 index experienced a decline of 1.4%, while the Nasdaq Composite decreased by 1.9%, largely driven by a selloff in major technology stocks.

Shares of Tesla fell roughly 4.5%, with other tech giants such as Amazon, Alphabet, Microsoft, and Nvidia all witnessing declines of about 2%.

The so-called “Magnificent Seven” tech stocks, which include Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, have contributed to more than half of the market’s gains this year, benefiting from intense investor interest in opportunities related to the artificial intelligence boom, according to S&P Dow Jones Indices.

However, market analysts have raised concerns that the heavy reliance on a limited set of stocks could expose the market to risks if these stocks underperform. “If a few of these companies fail to meet heightened expectations for positive surprises, they could all decline together as a result,” noted Keith Lerner, the chief market strategist at Truist Wealth. Lerner expressed a preference for a diversified market where growth comes from various sectors, so that if one segment struggles, another can support market stability.

In addition to this, the recent rally of Bitcoin also lost momentum as investors opted for profit-taking. The cryptocurrency tumbled to around $93,900 after it had peaked above $106,000 earlier this month, fueled by speculation regarding a more crypto-friendly administration with President-elect Donald Trump taking office soon.

In the bond market, Treasury yields rose, with the 10-year yield surpassing 4.6%. This increase may be causing some investors to turn away from equities in favor of higher-yielding bonds.

The trading volume was relatively low due to the holiday season, which amplified the market's fluctuations. Despite the downturn in stocks, analysts pointed out that there wasn't any significant news driving these market movements. Historically, dramatic shifts like this are common in holiday weeks when many traders are on vacation.

Low trading volumes can lead to higher volatility, and many investors took the opportunity to secure profits as they made their way out of the market. It’s worth noting that similar selloffs have occurred in past years; for example, last year on December 20, the Dow dropped 500 points without any clear reason. In December 2022, the Dow fell by 765 points, again seemingly unfounded with market commentary pointing to “recession fears” that later proved unwarranted.

Looking back at 2018, a notable series of market upheavals occurred when the Dow sank by 4,000 points over a 10-day span before experiencing a huge single-day rebound of 1,086 points amidst extreme volatility.

As investors turn their eyes towards 2025, some analysts believe that stocks will continue to outperform bonds, even following a strong performance over the last two years. Anthony Valeri, director of investment management at California Bank & Trust, noted in a recent communication that “investors should maintain their equity exposure into the New Year,” as stocks remain a strong hedge against inflation.

This story is ongoing and will be updated as necessary.

Stocks, Tech, Market