Wall Street Declines Amid Liquidity Concerns

(Reuters) – Tech and growth stocks dragged Wall Street's main indexes lower on Friday, concluding an upbeat holiday-shortened week driven by expectations of a traditionally strong market period.

The Dow Jones Industrial Average fell 1.26%, the S&P 500 was down 1.68%, and the Nasdaq Composite briefly dropped 2.25%.

Comments:

Adam Turnquist, Chief Technical Strategist for LPL Financial:

“Big tech is taking a much-deserved holiday break after doing most of the heavy lifting for the broader market since Election Day. The Magnificent Seven has contributed to around 85% of the S&P 500’s +4% gain since November 5. However, selling pressure today has expanded beyond just the mega caps as over 90% of S&P 500 constituents are trading in the red. It’s hard to put a lot of weight on a thinly traded holiday-shortened week, but the latest relief rally has lost momentum. Bulls are faced with another test at the 50-day moving average into the weekend. A failure to hold this level (5,940) would likely lead to a retest of the November price gap near 5,860. Damaged market breadth and lack of bullish momentum indicators suggest elevated near-term downside risk. The macro backdrop has become more challenging for a sustained recovery, especially with 10-year Treasury yields and the dollar breaking out above key resistance levels last week.”

Alex Morris, President & CIO, F/m Investments:

“Over the past decade, and more so since the COVID melt-up, equity markets have increasingly become liquidity dependent. Slow days like now lack enthusiastic investors, leading to lagging performance. Tax-loss harvesting remains an option beyond the ten largest stocks in broad market indexes, making today’s ‘red’ less alarming. This market thrives on liquidity.”

Steve Sosnick, Chief Market Strategist, Interactive Brokers:

“I’ve heard anecdotes of pension funds rebalancing ahead of year-end, selling stocks and buying bonds. Although unverified, it could explain today’s sell-off. A reminder that a 'Santa Claus' rally, while statistically likely, is not guaranteed. We’ve seen a buy-the-dips attempt reversed, indicating selling or rebalancing by large investors.”

Jay Woods, Chief Global Strategist, Freedom Capital Markets:

“Investors are raising cash, taking profits while gearing up for potential opportunities in the new year. Tech has had a tremendous run and is beginning to pull back.”

Robert Pavlik, Senior Portfolio Manager, Dakota Wealth:

“Selling pressure can spiral out of control in a thinly traded market. It’s more non-professionals looking for direction. There’s uncertainty about interest rates and the incoming administration. Many are repositioning and reallocating funds with changes expected in early next year.”

Peter Tuz, President, Chase Investment Counsel:

“This is typical year-end selling pressure with many having a good year. There aren’t many buyers, and tax planning is top of mind, which contributes to lowered volumes.”

Bryce Doty, Senior Portfolio Manager, Sit Fixed Income Advisors:

“Today’s market reaction is mostly due to tax implications. Tax positioning outweighs other factors. The Fed's perceived disconnect from economic realities worsens the outlook for equities.”