The major averages dropped Friday,but off the lows, building on their year-end sell-off, as fears grow over a recession taking place as the Federal Reserve continues raising rates. The Dow Jones Industrial Average lost 281 points, or 0.85%, to 32,920. The S&P 500 fell 1.11% or 43 points to 3,852.36. Meanwhile, the tech-heavy Nasdaq Composite declined 105 points or 0.97% to 10,705.

The indexes notched a second consecutive week of losses. The S&P 500 fell 2.08% for the week, and putting its December losses at 5.58%, as hopes for a year-end rally fizzle. The Dow and Nasdaq slid 1.7% and 2.7%, respectively

Trading was especially volatile Friday with a large amount of options expiring. There were $2.6 trillion worth of index options expiring, the highest amount "relative to the size of the equity market in nearly two years," according to Goldman Sachs. At session lows, the Dow was down as much as 547.63 points, before paring back some of those losses.

The sell-off was broad-based, with three stocks falling for every advancer at the New York Stock Exchange. At one point, there were only 10 S&P 500 names in positive territory. The real estate and consumer discretionary sectors were the biggest laggards, down nearly 3% and 1.7%, respectively.

Stocks fell this week in the wake of the Fed's 50 basis point interest rate hike on Wednesday — the highest rate in 15 years. The central bank said it would continue hiking rates through 2023 to 5.1%, a larger figure than previously expected.

Following the policy update, the Dow dropped 142 points on Wednesday, plunged 764 points Thursday, and declined further on Friday.

"At the beginning of the week, we had the hope, given the very soft CPI number, that we could expect the Fed, and maybe the other central banks of the world, to be less hawkish," Bokeh Capital founder Kim Forrest said.

"But because they didn't, and they had some stern words for investors and consumers alike that they were really focused on getting inflation down quickly, that has taken away a lot of our hope for a soft landing," Forrest added. 

A quarterly event called the "triple witching" is raising the level of volatility in markets Friday, but Santa Claus could still help markets rally into year-end, according to Quincy Krosby, chief global strategist at LPL Financial.

A large amount of options that are expiring on Friday is causing big swings for markets, with the Dow down more than 400 points in afternoon trading. There are $2.6 trillion worth of index options set to expire, according to Goldman Sachs.

Still, investors hopeful for a Santa Claus rally could get one next week.

"With the S&P 500 close to the key technical level of 3,900 – and now oversold by most measures – today's market could surprise to the upside especially given the surge expected in volume," Krosby wrote in a Friday note.

"Should today's market performance disappoint, however, Santa could arrive next week to provide holiday greetings and help underpin an even deeper 'oversold' rally, even if it's not within the technical

definition of when he's supposed to arrive. The market doesn't care when he arrives, just that he actually shows up!" Krosby added.