The S&P 500, the broadest measure of the stock market, tumbled Wednesday afternoon, starting just after 2 pm ET. It was on pace to hit a record — its first in nearly two years.
Then, the bottom fell out. Within minutes, the index was down a half a percentage point. Within an hour, it had fallen more than 1%, and it ended the day down nearly 1.5%. The Dow, which had been up nearly 100 points, ended the day almost 500 points lower.
The VIX volatility index experienced a more than 7% spike on Wednesday, reaching its peak around 3 pm ET before receding somewhat. CNN’s Fear and Greed Index, which had begun the day firmly in “Extreme Greed” territory, retreated to “Greed” territory by day’s end.
Before jumping to conclusions, it’s essential not to panic, as such fluctuations are quite typical in the waning weeks of the year. Given that many traders are on vacation during this period, the ultra-low trading volume often gives rise to what is known as Santa Claus rallies – a phenomenon where markets surge towards the end of the year when attention is limited. the broadest measure
Despite the day’s sell-off, there was, according to FactSet, “nothing really new from a narrative perspective as things continue to slow into the holidays and year-end.” There was no discernible catalyst for the drop.
Low trading volume not only characterizes this time of the year but can also translate into heightened volatility. As the remaining traders choose to secure recently acquired profits and step back, momentum undergoes a shift, with individuals literally and figuratively making their way for the exits.
Still concerned? Let’s briefly revisit history.
On December 15, 2022, the Dow unexpectedly plummeted by 765 points, with no apparent reason. Some analysts attributed it to “recession fears,” which ultimately proved unfounded. Similarly, on December 30, 2019, the Dow dropped by 200 points, with the day being described by CNN Business as “relatively devoid of news.”
The most memorable year-end market turbulence occurred in the final 10 days of 2018. During this period, the Dow experienced a 4,000-point decline, only to rebound with a remarkable 1,086-point gain, followed by a roller coaster day that nearly wiped out those gains on the subsequent trading day.