This, from CNBC, captures the significant change in the markets’ probability of a January rate cut by the Fed.
#economy #markets #FederalReserve pic.twitter.com/IZUrkpIp90— Mohamed A. El-Erian (@elerianm) December 23, 2024
The Dow Jones Industrial Average narrowly snapped its longest losing streak since 1974 on Thursday, closing at 42,342.24 after adding 15.37 points or 0.04%. Despite initial rebounds, the major indices closed the session lower, with the S&P 500 falling 0.09% to 5,867.08 and the Nasdaq Composite slipping 0.10% to 19,372.77. Seven out of the 11 sectors in the S&P 500 ended the day lower as the 10-year Treasury yield rose for a second consecutive day, topping 4.5% and adding pressure on stocks.
Further to last week’s post, here is the link to the article on reactions to last week’s Fed policy meeting.https://t.co/y02nlIQv56#economy #markets #federalreserve @ft #econtwitter pic.twitter.com/KHLrzEP0gq
— Mohamed A. El-Erian (@elerianm) December 23, 2024
After the Federal Reserve’s latest meeting, it was clear that the central bank plans to cut interest rates only twice next year, fewer than previously projected. The Fed trimmed its benchmark overnight borrowing rate by a quarter percentage point to a target range of 4.25% to 4.5%. Paul Meeks, co-chief investment officer at Harvest Portfolio Management, commented: “I think that this correction could last a bit.
Market Alert | USA: Broad-based rally in US markets; Week-to-date S&P 500 Up 1.8%, Dow Up 1%, Nasdaq Up 2.3%#USA #WallStreet pic.twitter.com/QxWjMKYEaS
— ET NOW (@ETNOWlive) December 25, 2024
What I would recommend is to maybe keep some powder dry,” reflecting cautious sentiment even after some marquee names like Nvidia saw declines. The Cboe Volatility Index, Wall Street’s “fear gauge,” pulled back nearly 13% to around 24 after spiking to 28.27 on Wednesday, indicating heightened investor uncertainty over interest rate trajectories. Fed Chair Jerome Powell remained cautiously optimistic, emphasizing a balanced approach targeting inflation control while maintaining a strong labor market.
Adding to investor worries, the government faces a potential shutdown. Key House Republicans reported reaching a short-term funding deal to prevent the shutdown scheduled to start on Friday evening. This development comes amid President-elect Donald Trump’s declaration against supporting measures that don’t include a debt ceiling increase.
TRANSCRIPT: Full text of our chat today with @MaryDalyEcon on why the Fed just cut, even with the inflation target not having been met. https://t.co/2aKfP00g5D
— Joe Weisenthal (@TheStalwart) December 23, 2024
Market volatility amid cautious optimism
Meanwhile, Wall Street’s VIX index saw its second-biggest spike ever on Wednesday, surging 74% to 27.62. This spike followed the Fed’s announcement signaling a more cautious rate-cutting approach, down from four projected cuts in September to two in the next year.
The Dow tumbled by 1,100 points, closing its tenth straight loss. Wharton professor Jeremy Siegel regarded Wednesday’s sell-off as “healthy” for the market, saying, “The market [had been] in almost a runaway situation … and this brought them to reality.
The market was overly optimistic … so I am not surprised at the sell-off.” Siegel forecasts only one or two rate reductions for next year, with a potential of no cuts in 2025 given the Fed’s raised inflation forecast. In midday trading, several companies reported notable movements.
Shares of Hims & Hers fell over 10% following the U.S. Food and Drug Administration’s comments on tirzepatide, the active ingredient in some diabetes and weight loss drugs. Darden Restaurants saw a 15% rise after reporting strong same-store sales growth at Olive Garden and LongHorn Steakhouse. However, Micron’s stock slumped more than 16% after the company issued warnings about weaker consumer-oriented markets in the short term.
Overall, a blend of cautious optimism and ongoing federal policy adjustments seems to be guiding the market as the year approaches its end.
