(Bloomberg) -- Major US benchmarks extended a selloff for a fifth day, shaving more than a trillion dollars from share prices. A pair of deadly attacks compounded market angst, starting the first trading day of the year on a dour note.
An early rally collapsed driving the Nasdaq 100 down more than 1%. The tech-heavy gauge and the S&P 500 clawed back losses to end Thursday down 0.2%. Tesla Inc.’s post-Christmas slump swelled to nearly 20% after its annual vehicle sales dropped, dragging on the indexes.
Treasury yields steadied following a choppy session. The rate on the benchmark 10-year was nearly 20 basis points above the level prior to Jerome Powell’s hawkish turn at a Dec. 18 Federal Reserve meeting. Big moves have proliferated across asset classes after Powell’s board expressed waning enthusiasm for interest-rate cuts. The Cboe Volatility Index climbed for the fourth time in five days.
Tesla sagged after the electronic vehicle-marker’s fourth-quarter deliveries missed estimates and annual sales dropped for the first time in over a decade. The stock registered its worst five-day drop in more than two years.
For corporate earnings, 2025 will be a “show-me year,” according to Lisa Shalett at Morgan Stanley Wealth Management, who warned that the dominance of the Magnificent Seven — the big technology stocks responsible for the bulk of last year’s gains — was teetering. “This idea that they as a group can trade together and lead the market may falter in 2025,” she said. It’s a call echoed by others on Wall Street, including Bank of America Corp.’s Savita Subramanian.
As for the grim slide in the final days of 2024, it’s “too soon to call it a bad omen,” Shalett told Bloomberg Television.
What Bloomberg strategists are saying...
While the notable absence of a Santa Rally has previously led to a rebound in stocks for the month of January, the year’s first trading day doesn’t offer a great signal for the whole 12-month period. Over the past four years, for example, it has actually been a contrarian indicator, Deutsche Bank notes. The S&P 500 ended the year inversely of how it started.
Extending that analysis back to 1928, the year’s first trading day and the SPX’s annual performance have a poor correlation and have only moved in tandem ~50% of the time.
Tatiana Darie, MLIV Strategist, New York
Treasuries erased gains after a reading of weekly jobless claims fell to an eight-month low. A Bloomberg gauge of the dollar’s strength traded at a more than two-year peak.
Goldman Sachs economists led by Jan Hatzius noted that “seasonal adjustment challenges can make jobless claims readings particularly volatile around the holiday season.”
US stocks had been straining to snap a losing streak that took some shine off the S&P 500’s best two-year run dating back to the late 1990s. The index has surged more than 50% since the start of 2023, driven by gains in the tech megacaps amid enthusiasm about the boost to profits from artificial intelligence.
An attack on revelers celebrating New Year’s in New Orleans thrust US domestic security back into the spotlight less than a month before Donald Trump is sworn in as president. The Federal Bureau of Investigation is probing that incident as well as the deadly explosion of a Tesla Cybertruck outside of Trump’s hotel in Las Vegas.
A shooting overnight at a nightclub in New York City only added to the anxiety, while authorities said it wasn’t related to terrorism.
CBOE’s gauge of Wall Street stock sentiment, the VIX, touched 19. Readings above 20 indicate mounting concern over near-term volatility.
On Friday, investors will be watching the House speaker vote to see if Mike Johnson will retain his position. GOP squabbling over his reelection could bode ill for the president-elect’s agenda, according to Tom Essaye, founder of the Sevens report.
If Johnson’s confirmation takes several rounds of voting over several days, “that will be a bad sign for Republican unity and hopes for quick action on pro-growth policies will take a hit,” he wrote.
In the months to come, the growth outlook in Europe and China, the Federal Reserve’s policy path and Trump’s ability to execute on his campaign promises will be among the most pressing items on traders’ radars.
Euro Bludgeoned
European energy shares outperformed after a sharp increase in natural gas prices as the region braced for freezing winter temperatures without Russian supplies delivered via Ukraine. A transit contract between the two warring nations expired on New Year’s Day, with no alternative in place.
The euro fell to the weakest against the dollar in over two years reflecting concerns about European growth, US trade tariffs and monetary policy divergence with the US. Many strategists are forecasting a slide to parity with the dollar or even lower this year.
In Asia, sentiment was subdued, with Chinese equities the worst performers as data pointed to a slowing economy and traders looked ahead to potentially higher tariffs. MSCI Inc.’s gauge of Asian shares fell for the third day out of the past four. Financial markets in Japan remained closed.
Elsewhere in commodities, oil climbed after an industry report signaled US crude stockpiles continued to shrink. A report from the American Petroleum Institute showed inventories fell by 1.4 million barrels last week, which would be a sixth straight drop.
Gold rose, trading around $2,657 an ounce. Bitcoin extended its rally to a third day.
Key events this week:
US ISM manufacturing, light vehicle sales, Friday
Some of the main moves in markets:
Stocks
The S&P 500 fell 0.2% as of 4:01 p.m. New York time
The Nasdaq 100 fell 0.2%
The Dow Jones Industrial Average fell 0.4%
The MSCI World Index fell 0.2%
Chicago Board Options Exchange Volatility Index rose 3.5%
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.9% to $1.0264
The British pound fell 1.1% to $1.2380
The Japanese yen fell 0.2% to 157.60 per dollar
Cryptocurrencies
Bitcoin rose 2.6% to $97,242.95
Ether rose 2.7% to $3,452.44
Bonds
The yield on 10-year Treasuries declined one basis point to 4.56%
Germany’s 10-year yield advanced one basis point to 2.38%
Britain’s 10-year yield advanced three basis points to 4.59%
Commodities
West Texas Intermediate crude rose 2% to $73.13 a barrel
Spot gold rose 1.4% to $2,660.01 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Richard Henderson, Chiranjivi Chakraborty, Cecile Gutscher and John Viljoen.
