Market Recap: Stocks Tumble as Fed Signals Fewer Rate Cuts for 2025
Major Indexes Plunge on Fed’s Cautious Stance
On Wednesday, December 18, 2024, U.S. stock markets experienced a significant downturn following the Federal Reserve’s latest policy announcement. The central bank’s decision to reduce interest rates by 25 basis points was overshadowed by signals of a more cautious approach to rate cuts in 2025, leading to a broad sell-off across major indexes.
The S&P 500 (^GSPC) plummeted 178.45 points, or 2.9%, closing at 5,872.16. This marked the index’s second-worst daily loss of the year, pulling it further from the all-time high set just a couple of weeks ago. Despite this setback, the S&P 500 remains up an impressive 23.1% for the year.
The Dow Jones Industrial Average (^DJI) shed 1,123.03 points, or 2.6%, ending the session at 42,326.87. This decline extended the Dow’s losing streak to nine consecutive sessions, the longest such streak since February 1978. Year-to-date, the Dow has still managed to gain 12.3%.
The tech-heavy Nasdaq Composite (^IXIC) suffered the most significant percentage loss, dropping 716.37 points, or 3.6%, to close at 19,392.69. Despite this sharp decline, the Nasdaq maintains a robust 29.2% gain for the year, outperforming other major indexes.
Federal Reserve’s Decision and Market Reaction
The Federal Reserve’s decision to cut interest rates by 25 basis points was widely anticipated by market participants. However, the central bank’s updated projections, particularly the “dot plot” of rate expectations, caught investors off guard. Fed officials now project just two rate cuts for 2025, down from the four cuts they had previously forecasted.
This more hawkish stance from the Fed triggered a surge in U.S. Treasury yields, with the 10-year yield climbing past 4.4%. The prospect of higher interest rates for a longer period put pressure on equities, especially growth and technology stocks that are sensitive to interest rate changes.
Stock-Specific News and Sector Performance
In the technology sector, Nvidia Corporation (NVDA) showed resilience, rising over 3% in premarket trading after hitting a two-month low on Tuesday. The AI giant’s stock performance underscores the ongoing interest in artificial intelligence-related investments.
Tesla Inc. (TSLA) experienced a pullback, dropping 2.8% after a strong 14% rally over the previous three sessions. This volatility reflects the dynamic nature of investor sentiment towards electric vehicle manufacturers.
Cryptocurrency-related stocks faced pressure as Bitcoin prices fell 2%. MARA Holdings (MARA) and Riot Platforms (RIOT) saw declines of 1.8% and 2.4%, respectively, highlighting the interconnectedness of crypto assets and related equities.
In the consumer goods sector, Birkenstock (BIRK) shares edged lower after the company provided fiscal 2025 revenue growth guidance below market expectations, illustrating the challenges faced by retail companies in the current economic environment.
Looking Ahead: Market Outlook and Upcoming Events
As we approach the end of 2024, investors are reassessing their strategies in light of the Fed’s latest guidance. The central bank’s cautious stance on future rate cuts suggests that economic growth and inflation concerns continue to influence monetary policy decisions.
Market participants will be closely monitoring upcoming economic data releases and corporate earnings reports to gauge the health of the U.S. economy and individual company performances. Key events to watch in the coming days include:
1. Retail sales figures for the holiday shopping season
2. Housing market data, including existing home sales and new housing starts
3. Weekly jobless claims reports, providing insights into the labor market’s strength
4. Earnings releases from major companies across various sectors
Despite the recent market turbulence, the S&P 500, Nasdaq, and Dow Jones Industrial Average are all on track to end the year with substantial gains, reflecting the overall resilience of U.S. equities in the face of economic uncertainties and geopolitical challenges.
As we move into 2025, investors will need to navigate a complex landscape of monetary policy shifts, global economic trends, and evolving market dynamics. The Federal Reserve’s commitment to data-dependent decision-making suggests that future policy moves will continue to be a key driver of market sentiment and performance.
