A sell-off in mega-cap stocks sparked a broader slump across Wall Street on Friday, though the three main benchmarks managed to hold on for weekly wins. Today's price action puts the Santa Claus rally at risk, which has historically spelled trouble for January returns.
At the close, the Dow Jones Industrial Average was down 0.8% at 42,992, the S&P 500 was off 1.1% at 5,970, and the Nasdaq Composite had lost 1.5% to 19,722.
Nvidia (NVDA) was the worst Dow Jones stock today, sliding 2.0% to bring its month-to-date deficit to 0.8%. Still, the artificial intelligence (AI) bellwether has nearly tripled for the year to date and Morgan Stanley analyst Joseph Moore says it remains a top stock pick heading into the new year.
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Moore admits that Nvidia is facing near-term concerns – some of which are overstated (slow Hopper builds) and some of which are anxiety-inducing at the moment (certain versions of Blackwell chips are not ready to ship) but irrelevant over the long term.
However, the analyst says that the acceleration in the supply of Blackwell chips will result in higher revenue – and more upside potential – for NVDA than its peers.
Tesla gives back more Trump gains
Nvidia was hardly the biggest loser among mega caps. That award went to Tesla (TSLA), which plunged 5.0%.
Nevertheless, shares of the electric vehicle (EV) maker remain 25% higher on the month and have surged 50% since Donald Trump's victory at the ballot box in early November.
CFRA Research analyst Garrett Nelson sees even more upside for Tesla in the new year and recently raised his price target on the consumer discretionary stock to $560 from $450, representing implied upside of 30% to current levels.
The discontinuation of the federal EV tax credit should benefit Tesla "by increasing its automotive regulatory credit revenue" thanks to state initiatives such as California's Zero-Emission Vehicle (ZEV) program. Specifically, Nelson believes automakers will need to buy credits received from these programs from Tesla in order to comply with regulations.
Buffett buys more VeriSign shares
Outside of the mega-cap space, VeriSign (VRSN) was a bright spot in Friday's washout, with the tech stock gaining 0.6%. This comes after regulatory filings revealed Warren Buffett's Berkshire Hathaway (BRK.B) bought nearly 378,000 shares of the website domain-name registry services company for roughly $74 million between December 17 and December 24.
VRSN first became a Berkshire Hathaway equity holding in the fourth quarter of 2012. At the end of Q3 2024, Berkshire owned 12.8 million shares, accounting for 0.9% of the portfolio and making it the 14th largest position.
According to MarketWatch's Phil van Doorn, it's possible Buffett is attracted to VeriSign's healthy margins, including an 88% gross margin in Q3. (Gross margin is the profit that's left over after subtracting the cost of goods sold from revenue and the higher, the better.)
Filings have also revealed that Berkshire increased its stakes in energy stock Occidental Petroleum (OXY) and audio streaming company Sirius XM Holdings (SIRI).
These purchases are particularly notable given how much selling Buffett & Co. have done this year – including drastically reducing the holding company's stake in Apple (AAPL).
The Santa Claus rally is at risk
The Santa Claus rally is "officially defined as the last five trading days of the year plus the first two trading days of the new year," says Adam Turnquist, chief technical strategist for LPL Financial. "Since 1950, the S&P 500 has generated average and median returns of 1.3% during this period, widely outpacing the market's average seven-day return of 0.3%."
Turnquist adds that when stocks deliver a positive Santa Claus rally return, the S&P 500 has averaged a January return of 1.4%. However, "when Santa doesn't show up and stocks are lower over this period, the S&P 500 has generated an average January return of -0.02%," he notes.
Since the start of this year's Santa Claus rally, the S&P 500 is down 0.02%.
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