U.S. Stocks Drop for 10th Session in a Row: Analyst Reactions
Dec. 18 (Reuters): Following the Federal Reserve’s decision to lower interest rates by a quarter of a percentage point and forecasts indicating a slower pace of rate cuts in 2025, why stock market down today U.S. stocks fell sharply on December 18.
U.S. Stocks Fall for 10th Consecutive Day: Insights from Market Experts
The Dow Jones Industrial Average lost 2.61%, the Nasdaq Composite sank 3.62%, and the S&P 500 declined 2.96%. The S&P 500 and Nasdaq saw their largest single-day percentage losses since August and July, respectively, while the Dow experienced its longest losing run since October 1974 with its tenth consecutive decrease. Additionally, the small-cap Russell 2000 saw its biggest decline since June 2022, falling 4.4%.
The following summarizes the opinions of analysts regarding the response of the market:
Investors had anticipated the Fed would change its mind, but instead the central bank reiterated its cautious approach to rate decreases, according to Gene Goldman, Chief Investment Officer at Cetera Investment Management. According to Goldman, the Fed’s forecasts indicated higher economic growth and ongoing inflation, which, combined with fewer rate decreases, caused market trepidation. “The markets had factored in that everything would be ideal, with no alterations or uncertainties. This increases the level of risk that hasn’t been priced in yet.
The market’s response was deemed rather unexpected by Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, who described it as a “sell on the news.” He admitted that although the Fed’s moves were mainly anticipated, the day’s steep falls were caused by a buildup of market selling pressure. Pavlik also made predictions about the market sell-off’s endurance, speculating that if profit-taking persists, a period of consolidation may ensue.
In light of the Fed’s emphasis on ongoing inflation and a robust U.S. economy, particularly in comparison to its international counterparts, Carol Schleif, Chief Market Strategist at BMO Private Wealth, said she was surprised by the market’s response. According to her, traders had anticipated a more dovish stance from the Fed, but the central bank stuck to its concerns about inflation.
Harris Financial Group Managing Partner Jamie Cox likened the Fed’s activities to acting as a “Grinch,” pointing out that investors had priced in more aggressive easing, so when the Fed scaled back its planned rate reduction in 2025, the market had a dramatic drop.
LPL Financial’s Chief Equity Strategist, Jeff Buchbinder, pointed out that equities were already susceptible to a sell-off because of stretched positions. The collapse was sparked by a steep increase in inflation expectations and a corresponding sell-off in the bond market. “Once support from tech stocks evaporated, no other sectors stepped in to fill the gap,” Buchbinder said.
The Fed’s inflation outlook was more hawkish than anticipated, according to Guy LeBas, Chief Fixed Income Strategist at Janney Montgomery Scott, especially given a higher predicted core PCE inflation rate for 2025. LeBas pointed out that market fears about longer-lasting inflation were heightened by the higher move in the core inflation central tendency range.
Lastly, the Fed rate decision more hawkish posture shows a sincere commitment to combating inflation, according to Christopher Hodge, Chief U.S. Economist at Natixis. He thinks that when the Fed evaluates how the new administration’s economic policies will impact inflation dynamics, the rate-cutting pace should moderate.
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