The Dow Jones Industrial Average fell 124.32 points, or 0.4%, to close the day at 30,179. The S&P 500 fell 0.35%, while the Nasdaq Composite fell 0.1%. The biggest gainer in the S&P 500 was Fortinet (FTNT), up 6.9% as news about the SolarWinds cyberattack lifted shares of security companies.
Tesla got a big lift as well, rising 6% as the Nasdaq 100, comprised of other large-cap stocks of innovative companies, fell 0.1%. Tesla swung wildly in the last half-hour of trading, falling more than 3% at one point.
The company will be added into the S&P 500 Monday, and will be among the 10 largest-capitalization stocks in the index. Exchange-traded funds and indexed mutual funds that mirror the S&P 500 will have to buy the stock, but they are 100% invested in the market, explained Tim Anderson, managing director at TJM Brokerage, in an interview with Barronâ€™s.
Simply put, these funds donâ€™t hold cash, so they canâ€™t buy Tesla unless they sell other S&P 500 stocks to raise the money. That pressures the other stocks in the index.
At the same time, some traders often buy up a stock ahead of its inclusion in an index, James Ragan, director of wealth management research at D.A. Davidson, told Barronâ€™s. Tesla has run up 9% since Dec. 4, the day that marked the start of a recent choppy phase for stocks, while the S&P 500 is up 0.3%. It isnâ€™t clear whether short-term traders played a role in the swings in Tesla shares toward the end of trading Friday.
The other dynamic keeping a lid on stocks is that Congress, in the eyes of some on Wall Street, is failing to deliver by completing a deal for aid to prop up the economy. The $908 billion package of spending that investors have been counting on hadnâ€™t been approved as the weekend approached.
â€œWeâ€™ve had a pretty strong week related to vaccine news, expectations for a fiscal stimulus package,â€ Ragan said. â€œA little consolation from the all time highs and then a little bit of a pause going into the weekend.â€
JJ Kinahan, chief market strategist at TD Ameritrade wrote in a blog post Friday, â€œItâ€™s very hard to get things done in a lame-duck Congress. The market taking it pretty hard, with so much stimulus premium already built in.â€
The lack of stimulus comes at a time when many on Wall Street have noted stocks look a bit overextended on a technical basis. â€œWith successive new highs, the equity market may be getting ahead of itself in the short term,â€ wrote David Donabedian, chief investment officer of CIBC Private Wealth, in emailed remarks to reporters. Even in Thursdayâ€™s S&P 500 rally, only 41% of stocks on the index rose.
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