Dow drops nearly 200 points on second-to-last day of trading, trimming big gain for the year

Stick with the market when it gets scary: Pro
Stick with the market when it gets scary: Pro

Stocks fell from their all-time highs on Monday as investors took off some risk on the second-to-last trading day of a historic year for equities.

The Dow Jones Industrial Average dropped 183.12 points, or 0.6%, to 28,462.14, while the S&P 500 fell 0.5%, or 18.73 points, to 3,221.29. The two indices suffered their worst day in four weeks. The Nasdaq Composite fell 0.6%, or 60.62 points, to 8,945.99, after topping 9,000 for the first time ever last week. The Dow's year-to-date gain was trimmed to 22%.

Some of the biggest winners of the year, including Microsoft, Visa and J.P. Morgan, all finished the session in the red as investors took profits. Microsoft and Visa were among the top three gainers in the Dow this year, rallying 55% and 42%, respectively.

"The best-performing Q4 sectors are leading to the downside today, and that implies some short-term selling and people positioning before year-end," said Tom Essaye, founder of the Sevens Report. "The market was very overbought at the end of last week. Nothing really new has occurred to push the market up in the year-end."

U.S. equities have enjoyed a strong rally in December, with the main indexes hitting record highs last week amid year-end optimism. The S&P 500 notched five straight weeks of gains, rising 28.5% in 2019 through Monday's close. The benchmark is within reach of a historic year, sitting about one percentage point away from having its best year since 1997. As it stands now, it will be the best year since 2013.

"Investors probably shouldn't read too much into the price action owing to the fact markets are in the midst of a liquidity, attendance, and news desert during these final few days of the year," Adam Crisafulli, founder of Vital Knowledge, said in a note Monday.

Monday marked day four of the so-called Santa Claus rally period, which has historically given a boost to stocks. The S&P 500 rose 0.5% last week during the shortened holiday trading. Since 1950, the benchmark has rallied an average of 1.3% during the final five trading days of the year and the first two sessions of the new year, according to the Stock Trader's Almanac.

Market sentiment has been boosted by the easing tensions over U.S.-China trade relations. The world's two largest economies agreed earlier this month to a so-called "phase one" trade deal.

The South China Morning Post reported Monday Chinese Vice Premier Liu He, the nation's top trade negotiator, will visit Washington this week to sign the agreement. The newspaper, citing a source briefed on the matter, said the Chinese delegation will stay in the U.S. for a few days until the middle of next week.

White House trade advisor Peter Navarro told Fox News on Monday that the signing will likely happen within next week or so with both sides waiting for the translation.

The advance report on the U.S. trade in goods on Friday showed the trade deficit shrank to its narrowest since 2016 in November.

— CNBC's Ryan Browne contributed to this report.