Shares on Wall Street have closed sharply lower, sliding from all-time peaks on the first trading day of the year, as risk appetite ebbs amid upcoming run-off elections in Georgia and the persistent coronavirus surge.

The Dow, which touched a record high earlier in the session along with the S&P 500, was also dragged down by a more than 4 per cent fall in Boeing Co’s shares after Bernstein cut its rating to “underperform”, citing concerns about cash flow.

All three main indexes hit two-week lows, with record highs in the Dow and S&P 500 extending a 2020 rally fuelled by monetary stimulus and the start of vaccine rollouts.

The fate of president-elect Joe Biden’s agenda, meanwhile, including rewriting the tax code, boosting stimulus and infrastructure spending hinges firmly on Tuesday’s twin Senate races in the battleground state of Georgia that will determine control of the chamber.

Wall Street’s fear gauge touched a two-week high on Monday.

“Stocks are pulling back from a stunning year of gains,” said Brian Reynolds at Reynolds Strategy.

“We’re starting off with a virus out of control. We’ll probably going to end 2021 with a virus that could be under control by that time. How we get from start to finish will be filled with frequent pullbacks because people will be looking at short-term headlines,” he added.

Total US deaths from COVID-19 have reached more than 350,000.

Almost all S&P sectors dropped with real estate, utilities and industrials posting the sharpest percentage declines. Consumer discretionary and materials hit all-time highs in early trading.

The Dow Jones Industrial Average fell 382.59 points, or 1.25 per cent, to 30,223.89, the S&P 500 lost 55.42 points, or 1.48 per cent, to 3,700.65 and the Nasdaq Composite dropped 189.84 points, or 1.47 per cent, to 12,698.45.

The S&P 500 and the Dow posted their largest daily percentage falls since late October, while the Nasdaq had its biggest loss since December 9.

“Investors are at a point where they want to take a breather while they assess all the different things coming in the new year,” said Lindsey Bell at Ally Invest.

On the data front, US manufacturing activity picked up at its briskest pace in more than six years in December, a survey showed on Monday.

It comes on the heels of upbeat factory activity surveys across Europe and Asia earlier in the day.

Some investors are cautious about the pace of economic growth as US jobless claims remain stubbornly high, while a new round of pandemic-related restrictions and new coronavirus vriant have cast a shadow.

Tesla Inc’s shares extended a meteoric rally to scale a record high after the electric-car maker reported better-than-expected vehicle deliveries in 2020.

Shares of FLIR Systems Inc jumped more than 19 per cent after Teledyne Technologies Inc agreed to buy the thermal imaging camera supplier for $US8 billion ($A10 billion) in cash and stock.

Teledyne’s shares, however, dropped 7.5 per cent.

Declining issues outnumbered advancing ones on the NYSE by a 2.14-to-1 ratio; on Nasdaq, a 1.43-to-1 ratio favoured decliners.

The S&P 500 posted 54 new 52-week highs and no new lows; the Nasdaq Composite recorded 151 new highs, 19 new lows.

Volume on US exchanges hit 14.15 billion shares, compared with the 10.94 billion average for the full session over the last 20 trading days.