The Dow Jones Industrial Average could have used a “Santa Claus rally” to get back on track after a very bad month, but for the second year in a row, the big, happy guy was not on Wall Street.
At the end of December, the Dow DJIA +0.07% was down about 5.3%. That’s a much bigger drop than the 2.5% drop in the S&P 500 (SPX +0.16%) at the end of the month. The Nasdaq Composite COMP +0.15% went up 0.5% at the same time. These three stocks did not all do well, but the S&P and Nasdaq did much better than the Dow.
Reports from Dow Jones Market Data show that this was the worst December for the Dow since 2018 and the biggest monthly drop since September 2022.
Before we get into why the Dow hasn’t done much in the last month, it’s important to remember that stocks had a big rise after Election Day, which helped the Dow finish above 45,000 for the first time on Dec. 4.
A senior financial strategist at Allianz financial Management told BourseWatch, “From our point of view, we’ve had a pretty tremendous run-up.”
It might have become harder to explain why stocks were hitting new all-time highs, and a drop might have been coming. But the Dow went down in the first half of the month, while the S&P stayed mostly the same and the Nasdaq kept going up.
But after the Federal Reserve meeting on Dec. 18, all three measures fell by a large amount. Fed Chair Jerome Powell said that there would only be two 25-basis-point cuts in 2025, even though rates were lowered again. He also said that inflation might stay high until next year. It’s possible that investors didn’t like that opinion, because stocks went down sharply that day.
Steve Sosnick, chief analyst at Interactive Brokers, told MarketWatch, “We got that bad shock from Powell.” Markets were already pricing in only two rate cuts, so he didn’t say much that we weren’t expecting. But it was more hawkish than I think some of the most bullish market players had hoped for.
The bad shock happened before the holidays, a time when trading is generally slower. In the past, the holidays have been good for stocks. However, this year’s light trading meant that there was less liquidity and stock moves were more pronounced.
“These moves tend to be a little bit more big when people are taking chips off the table,” Ripley said.
Why did the DJIA get hit the hardest?
What made the other averages do better than the Dow?
“It’s tech; tech is in charge,” Sosnick said. The market goes up when tech wins. When tech loses, stocks go down.
A few tech names did really well in December. Apple Inc. (AAPL -2.15%) was up about 4% for the month, and Amazon (AMZN +1.44%) was up about 3%. Both of them helped the Dow go up because they are part of the average. On the other hand, Alphabet Inc. (GOOG +0.34%; GOOGL +0.35%) and Tesla Inc. (TSLA -6.27%), which are not in the Dow, were each up over 10% and 16% for the month.
“Technology was really making the markets go up.” “The Dow isn’t based on tech, either,” Sosnick said.
The Dow Jones Industrial Average is also different from the S&P 500 and Nasdaq Composite because it is a price-weighted index instead of a market-cap-weighted average. When share prices go up, they have a bigger effect on the index than when share prices go down. That is why, in December, Microsoft Corp.’s MSFT +0.10% monthly losses were given more weight than Apple’s monthly wins.
Sosnick said that this price-weighted structure makes the Dow’s success a little unpredictable because it gives some companies a big say in how the average does.
UnitedHealth Group Inc. UNH +0.26%, which has the second-largest share price of all the companies in the Dow as of Tuesday, was one of the most important ones. In part because of the death of CEO Brian Thompson on Dec. 4, UnitedHealth Group has had a rough month.
In December, other well-known names like Caterpillar Inc. (CAT +0.34%), Home Depot Inc. (HD +0.19%), and Sherwin-Williams Co. (SHW -1.50%) also went down a lot.
Ripley told MarketWatch, “I think there’s some more unique risk attached to those names.” “I think that UnitedHealth Group has made a big difference in that change in the Dow for the month of December.”
Because of these unique risks, buyers might want to use the Dow with a grain of salt when looking at the market as a whole. The Dow may not be in sync with the other averages some months.
On Tuesday, the last business day of the year, the Dow Jones Industrial Average was down about 0.1%. Even though it had a bad last month, the Dow had a good year, rising 12.9% in 2024. It has also grown about 28.4% in the last two years. Still, this isn’t even close to the S&P 500’s 53.2% growth and the Nasdaq Composite’s 84.5% growth over the last two years.
