Wall Street closed sharply lower on Friday as market participants booked profits to pay taxes as well as to rebalance their portfolios for the new year. Yields on various denominations of U.S. government bonds remained elevated. All three major stock indexes ended in negative territory. However, for the week, these indexes finished in positive notes. 

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) tumbled 0.8% or 333.59 points to close at 42,992.21. The blue-chip index recorded a six-day losing streak. Notably, 28 components of the 30-stock index ended in negative territory while 2 in positive zone. 

The tech-heavy Nasdaq Composite finished at 19,722.03, sliding 1.5% or 298.33 points due to weak performance by technology behemoths. The S&P 500 shed 1.1% to finish at 5,970.84. 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 Communication Services Select Sector (XLC) and the Real Estate Select Sector SPDR (XLRE) plummeted 1.7%, 1.3%, 0.9% and 0.8%, respectively. The fear-gauge CBOE Volatility Index (VIX) was up 8.3%% to 15.95.

Yields on Sovereign Bonds Remain Elevated

The yield on the benchmark 10-Year U.S. Treasury Note has jumped 52 basis points to 4.631%. The yield on the short-term 2-Year U.S. Treasury Note has fallen 2 basis points to 4.33%. Similarly, the yield on the 30-Year U.S. Treasury Note has surged 59 basis points to 4.821%.

The reason for this northbound movement of U.S. government bond yields is investors’ uncertainty 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.

A Growth Stocks Led Decline

A sharp decline of U.S. markets is predominantly led-by growth sectors like technology and consumer discretionary. These two sectors have seen significant bull runs in 2024 buoyed by accommodative monetary policies and a low-interest rate scenario adopted by the Fed. 

Growth sectors are highly sensitive to the movement of market interest rate and are inversely related. The share prices of these companies grow over a long time period. Consequently, higher risk-free market interest rate is detrimental to this sector as it will raise the discount rate thereby reducing the net present value of investment. 

Moreover, these companies depend on cheaper source of credit. Consequently, technology and consumer discretionary stocks tanked. Stock prices of NVIDIA Corp. NVDA, Alphabet Inc. GOOGL and Royal Caribbean Cruises Ltd. RCL tumbled 2.1%, 1.5% and 1.9%, respectively. NVIDIA and Royal Caribbean Cruises 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

For the week ended Dec. 20, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.2 million barrels from the previous week.

Weekly Roundup

The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – gained 0.4%, 0.7% and 0.8%, respectively, last week. The Dow ended a three-week losing streak.

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