U.S. Stocks Plunge As Fed Forecasts Fewer Rate Cuts Next Year

Stocks initially showed some strength during the early trading hours on Wednesday. However, the markets experienced a significant downturn following the Federal Reserve's announcement on monetary policy. The primary indices each faced sharp declines, with the Dow Jones Industrial Average extending its losing streak to a record ten consecutive sessions.

At the close of the trading day, the major indexes ended near the session's lowest levels. The Dow Jones tumbled 1,123.03 points, representing a 2.6% decline, to 42,326.87. The Nasdaq fell 716.37 points, or 3.6%, to 19,392.69, while the S&P 500 decreased by 178.45 points, equivalent to a 3.0% drop, closing at 5,872.16.

This day's severe downturn marked the Dow's longest losing streak since 1974, as it plunged to its lowest closing point in over a month. Similarly, the broader S&P 500 also reached a monthly low in its closing position.

The sell-off followed the Federal Reserve’s widely anticipated decision to lower interest rates by a quarter of a percentage point, yet it also indicated fewer rate cuts in the forecast for next year compared to earlier predictions.

The Fed adjusted the federal funds rate's target range downward by 25 basis points to between 4.25% and 4.50%, aligning with the rate cut earlier this November. Given the predictability of the rate cut itself, considerable attention was given to the Fed's updated economic forecasts.

The latest outlook suggests interest rates will fall within a 3.75% to 4.0% range by the end of 2025, contrasting with the September estimation which projected a range of 3.25% to 3.50%. These adjustments imply only two rate cuts throughout the next year, compared to the originally anticipated four.

The revised forecast of fewer rate reductions comes as Fed officials foresee higher inflation in 2025, projecting consumer price growth to reach 2.5%, up from the 2.1% previously forecast in September. During his post-meeting conference, Fed Chair Jerome Powell stated that additional progress on managing inflation is required before contemplating further rate cuts, highlighting recent stagnations in annual price growth.

Significantly, the decision to reduce interest rates at this meeting was not unanimous, with Cleveland Fed President Beth M. Hammack dissenting, preferring to maintain the current rates.

The Fed's forthcoming monetary policy meeting is scheduled for January 28-29. According to CME Group's FedWatch Tool, there is presently a 90.3% likelihood that the central bank will maintain existing rates at that meeting.

**Sector Overview**

Gold stocks experienced a sharp decline due to a precipitous drop in gold prices during after-hours trading, which drove the NYSE Arca Gold Bugs Index to fall by 4.6%, marking its lowest closing point in over four months.

Financial sector stocks also displayed significant weakness, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index experiencing declines of 4.3% and 4.2%, respectively. Additionally, real estate stocks sensitive to interest rates faced substantial pressure, leading the Dow Jones U.S. Real Estate Index to plunge by 4.0%.

The market downturn was widespread, affecting software, housing, semiconductor, and steel stocks.

**Other Markets**

In international markets, Asia-Pacific stock exchanges presented a mixed performance on Wednesday. Japan's Nikkei 225 Index decreased by 0.7%, while China's Shanghai Composite Index increased by 0.6%.

Conversely, European stocks showed some resilience. The French CAC 40 Index climbed by 0.3%, and the U.K.'s FTSE 100 Index edged up by 0.1%, despite the German DAX Index closing slightly below the unchanged line.

In the bond market, Treasuries fell sharply in response to the Fed's revised rate cut projections. Consequently, the yield on the benchmark ten-year Treasury note, which moves inversely to its price, surged by 10.9 basis points, reaching 4.494%.

**Looking Ahead**

Thursday's trading is likely to continue reflecting reactions to the Fed's announcement. Traders are also expected to watch closely reports on weekly jobless claims and existing home sales.

The material has been provided by InstaForex Company - www.instaforex.com
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