US Market Reaction To Fed's Lesser Rate Cuts Outlook; Why Dow Jones Dropped 1,200 Pts On Dec-18?

The US market witnessed a panic selling on December 18, after FOMC-led by Jerome Powell hinted at fewer rate cuts in the upcoming policies, after closing 2024 with a 100 bps cut. Dow Jones extended its biggest losing streak since 1974, nosediving by more than 1,200 points. The Nasdaq Composite shed over 3.5%, and the S&P 500 plunged by 1.5%. This also comes amidst the dollar index rising to its highest level since 2022.

Dow Jones: The Dow Jones Industrial Average or DJIA closed at 42,326.87, declining by 1,123.03 points or 2.58% in a single day on December 18. The benchmark was closer to its intraday low of 42,300.04. Notably, DJIA has extended its losing streak for ten consecutive sessions, marking its biggest losing streak since 1974.

S&P 500: Bears ran over the S&P 500 so much so that the index tumbled by 88.99 points or 1.5% to finish at 5,961.62. The index was also near its day's low of 5,999.85.

Nasdaq Composite: The tech-heavy index plummeted massively by 716.37 points or 3.6% to close at 19,392.69. The benchmark touched the day's low of 19,336.59.

On the market performance, Trading Economics data stated that US equities tumbled on Wednesday as the Federal Reserve reduced interest rates by 25 bps but signalled fewer cuts than previously projected for next year, sparking a market sell-off. The S&P 500 and Nasdaq 100 sank by 2.9% and 3.7%, respectively, while Dow Jones, shed 1123 points, booking its 10th consecutive day of losses, its longest losing streak since 1974.

Trading Economics data stated that the Fed's widely anticipated rate cut to a target range of 4.25%-4.5% was overshadowed by its forecast of just two rate cuts in 2025, fewer than the four previously expected, which dampened investor sentiment. As the central bank lowered its forecast for the unemployment rate and raised expectations for core inflation and economic growth, Treasury yields surged, putting further pressure on stock prices. Semiconductors and healthcare sectors erased earlier gains, leaving all sectors in the red. Nvidia pared its earlier gains to fall 1.1%, while UnitedHealth rose 2.9%, recovering partially from a 20% loss following its CEO's murder.

On the expected lines, the Fed trimmed key fund rates for the third time in a row on Wednesday, December 18, which is the last monetary policy outcome of 2024. The latest rate cut is 25 bps, taking the total number of cuts in interest rates to 100 bps. However, the Jerome Powell-led FOMC has further signalled for a slower pace of cuts in 2025.

FOMC said that to support its goals, the committee decided to lower the target range for the federal funds rate by 1/4 percentage points to 4-1/4 to 4-1/2 per cent. The rate cut of 25 bps is in line with market expectations. FOMC aims to achieve maximum employment and inflation at the rate of 2 per cent over the longer run.

FOMC said the risks to achieving its employment and inflation goals are roughly in balance. Adding it said, "The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

However, FOMC has signalled for a slower pace of cuts in the coming policies. It said, "Considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

In its projections report, FOMC said, the outlook for the future path of the federal funds rate is subject to considerable uncertainty.