Market Recap: Wall Street Ends Mixed After Fed’s Cautious Stance on Rate Cuts
Major Indexes Close Flat as Market Digests Fed’s Decision
On Thursday, December 19, 2024, U.S. stock markets ended the day with mixed results following Wednesday’s significant sell-off triggered by the Federal Reserve’s cautious outlook on interest rate cuts for 2025. The market’s initial rebound in early trading gradually faded, leaving major indexes near flat by the closing bell.
The S&P 500 (^GSPC) edged down 0.1% to 5,867.08, while the Dow Jones Industrial Average (^DJI) inched up less than 0.1% to 42,342.24. The tech-heavy Nasdaq Composite (^IXIC) slipped 0.1% to 19,372.77. These minor movements came after one of the worst trading days of the year, highlighting investors’ ongoing recalibration of expectations following the Fed’s latest policy decision.
Federal Reserve’s Stance and Market Reaction
The market’s volatility stems from the Federal Reserve’s announcement on Wednesday, where it cut interest rates by a quarter percentage point to a range of 4.25% to 4.5%. However, Fed Chair Jerome Powell’s comments suggesting a more cautious approach to future rate cuts caught investors off guard.
Powell stated, “I think we’re in a good place, but I think from here it’s a new phase and we’re going to be cautious about further cuts.” This sentiment was reflected in the Fed’s projections, which now indicate only two quarter-point rate reductions by the end of 2025, half of what was anticipated in September.
Economic Indicators and Treasury Yields
The bond market reacted to the Fed’s stance, with the yield on the benchmark 10-year Treasury note reaching a seven-month high of 4.524% before settling at 4.51% by the end of Thursday. This surge in yields reflects investors’ reassessment of the economic landscape and inflation expectations.
Recent economic data has shown signs of resilience in the U.S. economy. The final GDP reading for the third quarter was revised upward to 3.1%, surpassing the previous estimate of 2.8%. Additionally, initial jobless claims for the week came in at 220,000, lower than expected and indicating a still-robust job market.
Corporate News and Stock Movements
Several companies made headlines on Thursday:
1. Micron Technology (MU) saw its shares tumble 16.18% after reporting mixed quarterly results and issuing a disappointing outlook.
2. Darden Restaurants (DRI), parent company of Olive Garden, surged 14.74% following better-than-expected earnings.
3. Tesla (TSLA) showed resilience, gaining 2% despite the overall market uncertainty.
4. Nvidia (NVDA) continued its strong performance, rising 1.37% as demand for AI chips remains robust.
5. Rigetti Computing (RGTI) experienced a significant drop of 30.12%, making it one of the day’s biggest losers.
Looking Ahead: Market Events and Expectations
As we approach the end of 2024, investors are closely watching several key factors:
1. Inflation data: The core PCE price index, the Fed’s preferred inflation gauge, is expected to show a slight uptick to 2.2% in the final reading for the quarter.
2. Corporate earnings: With the Q4 earnings season on the horizon, market participants will be keen to see how companies have navigated the high-interest rate environment.
3. Global economic developments: The Bank of Japan’s upcoming policy decision and its potential impact on currency markets, particularly the yen, which is hovering near the 155 per dollar mark.
4. Tech sector performance: The continued strength of mega-cap tech stocks and their influence on overall market direction.
Conclusion
As 2024 draws to a close, the stock market finds itself at a crossroads. The Federal Reserve’s cautious approach to rate cuts has injected a note of uncertainty into what has been a strong year for equities. With the S&P 500 up 23% year-to-date, investors are reassessing their strategies for 2025, balancing optimism about economic resilience against concerns over the pace of monetary policy easing.
The coming weeks will be crucial in determining market sentiment as we enter the new year, with economic data and corporate performance likely to play pivotal roles in shaping investor expectations.
