Nvidia, Tesla Drop 2% as Tech Leads Markets Lower
The Nasdaq fell 0.7% and S&P 500 slipped 0.4% Monday as megacap tech stocks retreated, casting doubt on the Santa Claus rally's staying power.
The Santa rally hit a speed bump.
U.S. stocks fell Monday as megacap tech names led the decline, with Nvidia and Tesla both dropping more than 2%. The Nasdaq Composite shed 0.7%, the S&P 500 fell 0.4%, and the Dow Jones Industrial Average slipped 0.3%, or roughly 170 points.
The pullback came just days after major indexes set fresh records on Christmas Eve.
What Happened
Technology stocks that powered 2025's gains turned into Monday's drag.
Nvidia, the AI chip giant that became the first company to cross $5 trillion in market cap this year, retreated about 2% after gaining more than 5% last week. The stock has run hard, and some profit-taking heading into year-end shouldn't surprise anyone.
Tesla dropped similarly, pulling back from its approach toward $500. The stock trades at 317 times earnings—a valuation that requires perfection. Any hesitation invites sellers.
Palantir, Meta, Oracle, and AMD also fell, extending the theme. When the AI trade pauses, it pauses together.
Santa Rally Context
The traditional Santa Claus rally covers the last five trading days of December and the first two of January. Historically, the S&P 500 has gained an average of 1.3% during this stretch since 1950.
But history is a guide, not a guarantee. And this year's setup is unusual.
Markets had already rallied into record territory before the window opened. The S&P 500 closed at 6,932 on Christmas Eve, an all-time high. The Dow hit 48,731, also a record. With gains that large already banked, some consolidation is normal.
The question is whether Monday's dip is just digestion or the start of something larger.
Volume Tells the Story
Trading volume was light, as expected for holiday week. Thin markets can exaggerate moves in either direction. A 0.7% drop in the Nasdaq on low volume carries less conviction than the same move on heavy participation.
Many institutional investors have closed their books for the year. Hedge funds are done trading. The desks are staffed with junior traders running small positions. This isn't a market sending strong signals—it's a market treading water.
What's Ahead
Wednesday brings the release of the Fed's December meeting minutes. While the rate decision itself was weeks ago, the minutes could reveal more about divisions within the committee. The 9-3 vote to cut rates showed unusual dissent, with one official wanting a larger cut and two preferring no change.
Markets have already priced in just one to two cuts for 2026. The minutes could either validate that outlook or complicate it.
Labor market data arrives later in the week with the ADP private payrolls report. Employment has remained solid despite higher rates, supporting the soft-landing narrative. Any weakness there could shift expectations.
Year-to-Date Numbers
Despite Monday's wobble, 2025 has been excellent for stocks.
The S&P 500 is up 17.7% year-to-date. The Dow has gained 14.5%, on track for its best year since 2021. The Nasdaq Composite leads with a 22.2% advance, driven by the AI boom that made Nvidia the world's most valuable company.
Three days of trading remain. The year-end close will set the benchmark against which 2026 performance is measured. For now, that setup looks strong—even if Monday's action offered a reminder that markets can still go down.