Stocks tumbled Wednesday on news that at first glance seemed less dire: The Federal Reserve may cut interest rates fewer times in 2025 than experts predicted.
The Dow Jones Industrial Average fell 2.6%, or 1,123 points, to close at 42,327 points. The S&P 500 fell nearly 3% to close at 5,872 points. The Nasdaq fell 3.6% to close at 19,393 points.
The S&P 500 and Nasdaq have been trading at or near record highs in recent days, in part due to expectations of a rate cut from the Federal Reserve.
But the Dow Jones had a long December. Wednesday marks 10th The index fell in a row, its longest losing streak since 1974.
On Wednesday, the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, a move that was expected by forecasters and was widely praised.
But the Fed also predicts that the pace of interest rate cuts will slow significantly next year, in part due to resurgent inflation. Analysts now predict just two interest rate cuts in 2025, half of what they predicted just a few months ago.
“Santa Claus came early and left a [quarter-point] “The market is stocking rates but with the caveat that coal will be out next year,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management in Charlotte, North Carolina.
Ahead of Wednesday, stock traders were hoping the Fed would continue aggressively cutting interest rates next year, potentially extending the current bullish market.
Federal regulators predict strong economic growth in 2025, a stronger job market and rising inflation. While some of this news was good, the market’s reaction was collectively out of control.
“The main takeaway from today’s Fed meeting is that inflation risks are back and the Fed is clearly concerned about that,” said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis, Minnesota.
To some analysts, the takeaway from Wednesday’s stock market action was that stock traders overreacted to the Fed’s action.
“The market has a bad habit of overreacting to Fed policy moves,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia. “The Fed didn’t do or say anything that deviated from market expectations — it looks like It’s more like, ‘I’m taking a vacation, so I’m going to sell and start a business next year. ‘” The good news is that these 10 days of selling should set the stage for next week’s Santa Claus rally.
This article originally appeared in USA Today: Disappointing Fed rate news sends Dow down 1,100 points
