Market Wrap | Fed Rate Cuts Fail to Calm Markets as Tech Giants Tumble and Yields Surge
1min read On December 18th, U.S. stocks suffered significant losses, with all three major indices closing in the red. The S&P 500 fell by 2.95% to 5,872.16 points, the Dow Jones dropped 2.58% to 42,326.87 points, and the Nasdaq sank 3.56% to 19,392.69 points. This sharp decline came despite a decision from the Federal Reserve to lower interest rates by 25 basis points — their third consecutive rate cut, aligning with market expectations.
Market reactions were swift following Federal Reserve Chair Jerome Powell's remarks. Powell highlighted that the economic posture could lead to more cautious considerations in future rate adjustments, raising the threshold for any further cuts. While these comments introduced an element of uncertainty into the market, investors were particularly attentive to the persistent worry of slowing stimulus, which might impact growth.
The announcement saw the rapid decline of indices as Powell delivered his speech, during which doubts concerning the pace of future rate reductions intensified. Investors focused on reports indicating the Federal Reserve's intent on reducing interest rates fewer times in 2025 than previously anticipated—a factor contributing to the bearish market sentiment.
Technology stocks suffered notable losses, with major tech giants experiencing declines. Tesla plummeted over 8%, while Amazon's stock fell more than 4%, parallelly Microsoft lost more than 3%. A ripple effect saw the broader tech-heavy Nasdaq composite tumbling markedly.
In fixed income markets, U.S. 10-year Treasury yields climbed to their highest since May, registering increases over 4%. The dollar index saw a significant boost, reaching its highest level since November 2022.
As the Federal Reserve unveiled its rate cut decision, gold prices extended their drop, with spot gold witnessing a steep fall by over $40 an ounce. By the early morning hours, it had plunged further into depths not charted in recent times.
Looking ahead, strategic analysts have begun reassessing prospects for 2025, when the monetary policy framework is due for review. Ongoing discussions around the 2% inflation target may further exacerbate U.S. Treasury yield fluctuations and likely introduce volatility into U.S. equity markets.
