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There is no question that 2024 has been a very good year for investors, yet the market is acting a bit squeamish as the year draws to a close. Friday's session saw a spike in the CBOE Volatility Index, rising Treasury yields, and lower stock prices. Treasury yields are lower this morning, but there has been another spike in the CBOE Volatility Index (+14.9% to 18.32) and stocks are indicated to open noticeably lower.
Currently, the S&P 500 futures are down 77 points and are trading 1.3% below fair value, the Nasdaq 100 futures are down 318 points and are trading 1.5% below fair value, and the Dow Jones Industrial Average futures are down 468 points and are trading 1.1% below fair value.
There isn't a specific news catalyst for the weakness, which is being paced by weakness in the mega-cap space after a year of tremendous gains. Entering today, the Vanguard Mega-Cap Growth ETF (MGK) is up 35.2%.
The selling interest, then, has profit-taking activity written on it with a P.S. presumably of rebalancing interest. The thing is, there isn't a rebalancing push in the stock market this morning. The weakness is broad based.
Cash is gravitating to the sidelines for the time being or to the Treasury market, which is likely benefiting anyway from some safe-haven interest stemming from many foreign markets being closed tomorrow (or closing early) in advance of the New Year's Day holiday. U.S. markets will be open for a full day of trading on Tuesday.
The 2-yr note yield is down six basis points to 4.27% and the 10-yr note yield is down six basis points to 4.56%. Of course, we can't rule out that the gains in the Treasury market, which began overnight, are also tied to a deteriorating equity futures market that is also spurring some safe-haven buying.
Separately, Boeing (BA) is down 3.7% after a Jeju Air crash on Sunday, which killed 179 of 181 people onboard, prompted South Korea to order an inspection of all 737-800 planes and the country's entire airline operation system, according to CNBC.
That news drew worldwide attention and was later followed by the news that President Jimmy Carter passed away at age 100. President Biden declared January 9 as a National Day of Mourning. Keeping with tradition, the stock market will likely be closed that day.
Today, however, the market is open and it is posing a threat to the Santa Claus Rally, which spans the last five trading days of the year and the first two trading days of the new year. That period typically produces a net gain for the market, but it has been noted by the Stock Traders Almanac that significant market downturns have tended to occur (but not always) in years when the market declines over that seven-session stretch.
