The Dow Jones Industrial Average tumbled on Wednesday, dropping by a staggering 1,123 points, or 2.6%, as a somber projection from the Federal Reserve dampened investor sentiment. This marked the extension of the Dow's losing streak to 10 consecutive sessions, the longest since the era of President Gerald Ford.
The Federal Reserve’s latest policy statement revealed a revision to its forecast, projecting only two interest rate cuts in 2025 instead of the previously anticipated four. This adjustment signaled that inflation may persist above the Fed's target range longer than originally expected, unsettling the markets.
The Dow's current losing streak mirrors a similarly grim period from September 20 to October 4, 1974, when the index endured 11 consecutive losses. Despite this extended decline, the cumulative loss over the past 10 days has been less than 6%, a relatively moderate contraction. Other major indexes, however, experienced sharper declines on Wednesday, with the S&P 500 shedding 3% and the Nasdaq Composite sliding 3.6%.
Investors had widely anticipated a quarter-point rate cut from the Federal Reserve, which was delivered as expected. Yet, the central bank’s accompanying outlook rattled markets, with its indication of prolonged tight monetary conditions. Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors, characterized the Fed's move as a “hawkish cut,” prompting simultaneous declines in both stocks and bonds.
Investor confidence was further shaken by a dramatic shift in rate expectations. On Tuesday, traders had priced in a 98% likelihood of another rate cut at the Federal Reserve’s January meeting. However, following Fed Chair Jerome Powell’s press conference on Wednesday, the probability plummeted to just 6%, according to fed funds futures data.
“The market was left disappointed by the Fed’s restrained outlook on rate adjustments,” commented Chris Zaccarelli, CIO at Northlight Asset Management.
The Dow’s decline was exacerbated by UnitedHealth Group, which has dropped 15% this month. The insurer’s downward trajectory began after the tragic shooting death of UnitedHealthcare CEO Brian Thompson. Curiously, UnitedHealth’s stock managed to close 3.3% higher on Wednesday.
Nvidia, a key player in the tech sector and a recent addition to the Dow, has also weighed on the index. Although Nvidia’s stock boasts an impressive 180% gain for the year, it has dipped 5% over the past month, contributing to the Dow’s downward momentum.
Despite the prolonged downturn, the Dow remains 14% higher year-to-date, reflecting a gain of over 5,000 points in 2024.
Earlier enthusiasm in the markets followed election results that alleviated fears of recounts and legal battles. Investors were buoyed by optimism surrounding promises of regulatory and tax reform. However, the latest developments have cast a shadow over the initial euphoria.
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