As the sun began to set over New York City on the evening of the 18th, traders on Wall Street braced themselves for a day of potential volatilityThe US stock market opened on Wednesday with mixed results, notably after the Dow Jones Industrial Average endured a grueling nine consecutive days of declineMarket sentiment was clouded by the impending Federal Reserve policy meeting and the anticipated remarks from Chairman Jerome Powell, with speculation that the Fed would implement a rate cut of 25 basis points.
By midday, the Dow had clawed back some losses, rising by 41.16 points or 0.09%, landing at 43,491.06. However, the Nasdaq Composite faltered, dropping 28.77 points or 0.14%, concluding at 20,080.29. The S&P 500 was barely impacted, sliding down by just 0.59 points to sit at 6,050.02.
The day prior had been marked by a tumble across the board, with the Dow suffering a significant drop over 0.6%, marking its longest losing streak since 1978. Should the Dow continue its downward trajectory, it would face its worst performance since 1974, when it dropped for 11 consecutive trading days.
Analysts debated the causes of this recent decline
Many pointed to a seismic shift in investor sentiment, with funds flowing from traditional blue-chip stocks into technology sharesIn contrast to the broader market indices, the technological sector's representation in the Dow is notably small, contributing to the index's struggles in this turbulent market.
Despite the negative trajectory, a silver lining remained; the Dow stood less than 4% away from its all-time highOver the course of the month, other market indicators showed little change, with the S&P 500 posting a modest 0.30% gain and hovering around 1% below its historical peakIn a twist, the Nasdaq experienced a surge of 4.6% as investors flocked to tech stocks while distancing themselves from Dow components.
The continued sell-off of Nvidia shares also weighed heavily on the DowFollowing its addition to the index on December 8th, Nvidia’s stock price plummeted nearly 12% this month alone.
Moreover, Wall Street’s realization began to dawn that the positive effects on the stock market might be less profound than anticipated
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Both the financial and industrial sectors had enjoyed periods of significant gains but were now grappling with uncertainties surrounding higher interest rates and the implications of fluctuating trade policiesThe healthcare sector, too, found itself contending with intensified political risks, further fueling investor unease.
Today’s gathering of the Federal Reserve stood as the market's zenith of interestThe Fed was set to release results from its final monetary policy meeting of the year at 2:00 PM ESTAccording to data from the CME Group's FedWatch Tool, there was a staggering 95% probability that the central bank would reduce its benchmark interest rate by 25 basis points.
Eyes were especially keen on the economic forecasts and upcoming press briefing from Powell, where many sought insights regarding the monetary policy trajectory for the coming monthsWith inflation rates remaining sticky, the market was keenly aware that the Fed might try to temper expectations for further rate cuts next year.
Speculation loomed over the Fed’s outlook for 2024, especially as the rate of inflation decreased more slowly than hoped
The latest round of economic data painted a mixed picture: retail sales rose steadily, contrasting a surprising decline in industrial output, creating a climate of uncertainty.
Many analysts referred to the Fed's looming rate cut as prudent yet hawkish, underscoring that the announcement would likely include updated economic projections, hinting at future policies for the initial months of the new year.
While inflation remained above the Fed's target of 2%, and with economic growth surpassing expectations amid unpredictable future trade, tax, and immigration policies, market sentiment regarding future rate cuts grew more indeterminate.
Since December 5, the data revealed that inflation resilience was stalling, leading investors to reassess their forecasts for the extent of rate reductions next year, estimating only a 50 basis point cutAttention now centered on Powell’s comments to see if the Fed would adopt a more cautious tone regarding their plan for future cuts.
Brian Moynihan, CEO of Bank of America, projected that the Fed would reduce rates to a level of 3.75%, necessitating three more reductions
He cautioned that while some easing would be prudent, a cautious approach was essential given signs that the economy was more robust than six months ago, despite lingering vulnerabilities, and added, “We have yet to address external factors—it's not just trade, but also international conflict.”
Highlighting the complexity of the situation, Samy Chaar, an economist at Lombard Odier, noted that investors were set to focus on two main aspects: the assurance of a rate cut, but with the caveat of it being a “hawkish” cut, indicating a gradual pace of reduction with a potential for higher long-term rates.
Chaar anticipated that new economic projections from the dot plot—a visual representation of Fed officials’ quarterly forecasts including anticipated interest rates—would reflect a stability around the 4% level instead of aligning with market expectations of 3.5%. This suggests a gradual approach to rate cuts rather than shifts happening at every meeting.
Ross Mayfield, investment strategist at Baird, echoed similar sentiments, predicting a rate cut but cautioning that Powell's tone could lean hawkish, indicating reluctance to commit to aggressive rate cuts in the ensuing years due to uncertain matters at hand
“If Powell articulates a hawkish message, we could see a market pullback,” he warned, although he remained optimistic that fluctuations following the Fed's announcements typically lacked longevity.
Tocchio, a portfolio manager at Kairos Partners, affirmed that the Fed would emphasize data reliance in decision-making, suggesting an environment of uncertainty that could lead to a maximum of three rate cuts in 2024.
The market's gaze was further fixated on upcoming economic data, anticipating signals about the broader financial landscapeReports indicated an unexpected decrease in new housing starts for December, with a decline in multifamily units overshadowing a rebound in single-family construction, particularly in storm-affected Southern regions.
According to newly released government data, housing starts fell by 1.8%, translating to an annualized rate of 1.29 million, marking a seven-month low compared to an expected rate of 1.35 million
Single-family housing starts increased 6.4%, translating to an annualized rate of 1 million, while multifamily starts witnessed a staggering drop of over 23%.
In terms of standout stocks, Nvidia was under the spotlightEarlier this week, Nvidia's stock fell into correction territory after its recent inclusion in the Dow only a month earlierAs investors shifted focus towards chip giant Broadcom, Nvidia experienced a decline of about 5.7% this month, slipping more than 10% from its all-time peak.
Microsoft made headlines as well, revealing it had ordered nearly 500,000 Nvidia Hopper chips for 2024. Reports from technology consulting firm Omdia indicated that Microsoft, the main investor in OpenAI, sourced double the number of AI chips from Nvidia compared to its closest competitor, Meta PlatformsEstimates suggest that Microsoft would procure approximately 485,000 chips, significantly outpacing Meta’s purchase of 224,000 chips for the year
Furthermore, expectations indicated Amazon and Google would acquire around 196,000 and 169,000 Hopper chips, respectively, by year-end.
In other news, allegations arose concerning Elon Musk, the CEO of Tesla and founder of SpaceX, facing scrutiny from the US military for allegedly breaching federal reporting agreements designed to protect national secretsReports highlighted multiple instances of Musk failing to disclose interaction details with foreign leaders, raising concern from military officials.
In an effort to tackle the electric vehicle transition and declining sales, Honda and Nissan announced plans to form a joint holding company, potentially inviting Mitsubishi Motors to join the partnership, with the aim of establishing the world’s third-largest automotive group.
Daiwa Securities raised its price target for Apple stock to $275, maintaining its outperform rating, forecasting that Apple Intelligence would become a focal point of a new growth cycle
Analysts highlighted the significant advantages Apple holds through its ecosystem that encompasses a range of devices and servicesThey expressed optimism surrounding Apple's potential dominance in the smartphone market, projecting a smartphone upgrade cycle to commence next year.
Furthermore, Jean Hu, AMD's executive vice president and CFO, indicated the company's preparedness to launch Arm architecture PC products if clients demand itShe emphasized that the processor architecture doesn't determine individual decision-making for personal PCs, positing that for AMD, the competition revolves fundamentally around product performance rather than instruction set architecture.
A looming strike was on the horizon as thousands of Amazon employees prepared to initiate a work stoppage set to commence on Thursday (19th), attributed to Amazon's refusal to engage in contract negotiations.
Reports indicated that the International Brotherhood of Teamsters had authorized strikes at three Amazon facilities situated in Staten Island, NY, Queens, and Skokie, Illinois.
Lastly, the Data Protection Commission of Ireland announced a substantial fine of €251 million ($263 million) against Meta Platforms due to a data breach in 2018 that impacted 29 million Facebook accounts worldwide