U.S. stock markets closed sharply lower on Monday as investors are increasingly booking profits toward the end of an impressive 2024. Market participants tax positing, higher valuation of U.S. stocks following an astonishing bull run of the past two years, elevated treasury yields, uncertainties regarding Trump’s economic policies along with the Fed’s rate cut policies and geopolitical conflicts significantly dampened investors’ sentiment on risky assets like equities. All three major stock indexes finished in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) tumbled 1% or 418.48 points to close at 42,573.73, after a choppy session. The blue-chip index recorded a seven-day losing streak. At intraday low, the index was down 728.78 points. Notably, 28 components of the 30-stock index ended in negative territory while 2 in positive zone. 

The tech-heavy Nasdaq Composite finished at 19,486.78, sliding 1.2% or 235.25 points due to weak performance by technology behemoths. The S&P 500 shed 1.1% to finish at 5,906.94. All 11 broad sectors of the broad-market index ended in negative territory. 

The Consumer Discretionary Select Sector SPDR (XLY), the Technology Select Sector SPDR (XLK), the Health Care Select Sector (XLV) and the Materials Sector SPDR (XLB) plummeted 1.6%, 1.3%, 1.2% and 1.3%, respectively. 

The fear-gauge CBOE Volatility Index (VIX) was up 9.1%% to 17.40. A total of 14.48 billion shares were traded on Monday, lower than the last 20-session average of 14.75 billion. Decliners outnumbered advancers on the NYSE by a 1.81-to-1 ratio. On Nasdaq, a 1.72-to-1 ratio favored declining issues. 

Trump’s Policies

Market participants are uncertain regarding Donald Trump’s economic policies. Trump’s popular policies like the reduction of corporate tax, deregulation and imposition of tariffs on foreign products are expected to boost economic growth, especially for the domestic industries. At the same time, these policies may lead to a higher inflation rate, making it harder for the Fed’s goal of a soft landing of the economy.

Fed’s Interest Rate Cut

Market participants remained uncertain regarding the Fed’s interest rate cut in 2025. The central bank has reduced the benchmark lending rate by 1% in the last three FOMC meetings of this year. The Fed fund rate is currently in the range of 4.25-4.5%. In December, the Fed’s latest “dot-plot” showed just two rate cuts of 25 basis points in 2025 instead of four indicated in September. 
Geopolitical Conflicts

Moreover, geopolitical conflicts such as the prolonged war between Russia and Ukraine, the war between Israel and extremist group Hamas, Palestine, Iran and Lebanon, and political upheaval in Syria and Bangladesh add to investors’ woes. 

Overvaluation of U.S. Stocks

After a bull run of past two years, investors are concerned of high valuations, especially for the “magnificent 7” stocks. Consequently, stock prices of Tesla Inc. TSLA, Meta Platforms Inc. META and Apple Inc. AAPL fell 3.3%, 1.4% and 1.3%, respectively. Tesla currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Economic Data

The National Association of REALTORS reported that the pending home sales gained 2.2% in November, marking the fourth consecutive month of increases and the highest level since February 2023. The consensus estimate was 0.7%. The metric for October was revised downward to 1.8% from 2% reported earlier.

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