U.S. Stocks Tumble as Fed Signals Fewer Rate Cuts in 2025

U.S. stocks sank to their second-worst loss of the year on Wednesday, December 18, 2024, as the Federal Reserve signaled that it may deliver fewer interest rate cuts in 2025 than earlier thought. The S&P 500 dropped 2.9%, the Dow Jones Industrial Average fell 2.6%, and the Nasdaq composite declined 3.6%. The Russell 2000 index of smaller companies also fell 4.4%.

The Fed's projections showed just two cuts to interest rates next year, instead of the four they were projecting a few months ago. Treasury yields ramped higher, adding pressure on the stock market. On Wednesday, the S&P 500 fell 178.45 points, or 2.9%, to 5,872.16. The Dow Jones Industrial Average fell 1,123.03 points, or 2.6%, to 42,326.87. The Nasdaq composite fell 716.37 points, or 3.6%, to 19,392.69. The Russell 2000 index of smaller companies fell 102.57 points, or 4.4%, to 2,231.51.

For the week, the S&P 500 is down 178.93 points, or 3%. The Dow is down 1,501.19 points, or 3.4%. The Nasdaq is down 534.03 points, or 2.7%. The Russell 2000 is down 115.38 points, or 4.9%. For the year, the S&P 500 is up 1,102.33 points, or 23.1%. The Dow is up 4,637.33 points, or 12.3%. The Nasdaq is up 4,381.34 points, or 29.2%. The Russell 2000 is up 204.44 points, or 10.1%.

The market's reaction reflected investors' concerns about the potential impact of higher interest rates on corporate earnings and economic growth. The Fed's revised projections for inflation and economic growth, released on Wednesday, significantly influenced the market's reaction to the interest rate outlook. The Fed indicated that it now expects inflation to remain above its target range for longer than previously anticipated, signaling a more cautious approach to rate cuts in 2025.

The performance of different sectors and individual stocks within the major indexes varied in response to the Fed's projections. UnitedHealth Group's 15% decline this month has dragged the Dow, in particular, lower. The insurance giant's selloff began after the fatal shooting of UnitedHealthcare CEO Brian Thompson. Nvidia, the US chipmaker that joined the Dow in November, has also dragged the 30-stock index lower. While Nvidia's stock is up over 180% this year, it has fallen in the past month, down about 5% and contributing to the Dow's decline.

Despite the long slide, the Dow remains 14% higher this year, up more than 5,000 points in 2024. Markets initially surged following the election results, with investors breathing a sigh of relief that recounts and court fights were avoided. There has also been significant enthusiasm for Trump's promises to cut red tape and taxes.

In conclusion, the U.S. stock market experienced a significant decline on Wednesday, December 18, 2024, as the Federal Reserve signaled a reduction in expected rate cuts for 2025. The market's reaction reflected investors' concerns about the potential impact of higher interest rates on corporate earnings and economic growth. The performance of different sectors and individual stocks within the major indexes varied in response to the Fed's projections.