Despite Wall Street’s hopes, the Federal Reserve’s latest announcements seem to have dampened spirits. With a less optimistic outlook on interest rate cuts for next year, U.S. stocks have found themselves in a slump.
The S&P 500 experienced a decrease of 0.8%. Meanwhile, the Dow Jones Industrial Average dipped by 37 points, which is approximately 0.1%, settling at 34,479 around late afternoon. The Nasdaq composite was not spared either, showing a decline of 1.3%.
The Fed’s decision to maintain its main interest rate, which is already at a peak not seen in over two decades, was largely anticipated. What caught the market off guard was the indication of a possible rate hike in the imminent future. The objective is clear: bring inflation back to the desired 2%. Chairman Jerome Powell, however, opined that the inflation rate may already be nearing its peak.
Market projections took a further hit when Fed officials hinted at a potential half-percentage-point rate cut for the coming year, a significant decrease from the previously expected full percentage point in 2024. Rate cuts have always been favorable for Wall Street as they often boost investment prices.
Stock stability post the Fed’s announcement was short-lived, with a noticeable decline as the day progressed. Sameer Samana from Wells Fargo Investment Institute weighed in, stating that the real impact of the Fed’s message might be realized gradually.
Chairman Powell reiterated the importance of flexibility in forecasts, suggesting that inflation and economic data could prompt changes.
The bond market saw Treasury yields surge post the Fed’s announcement, a trend consistent with recent strong reports about the U.S. economy. These reports hint at the possibility of the Fed maintaining elevated interest rates to combat inflationary pressures.
The performance of tech giants like Microsoft, Apple, and Nvidia mirrored the market’s sentiment with declines of at least 1.9%.
However, it wasn’t all gloom and doom. Textron’s shares surged 5.9% due to a lucrative deal with NetJets. On the other hand, Pinterest’s stocks rose by 4.5% after an optimistic forecast and recap during its investor day.
Internationally, while London’s FTSE 100 saw a rise of 0.9%, Asian markets like Japan’s Nikkei 225 and Hong Kong’s Hang Seng faced declines.