December 19, 2024

How many times have I said that on Fed days, unless you have something to do early on, that it pays to wait until Fed Chair Powell makes his presentation before getting a better sense of what is going to happen from 2pm into the close. And I hope those who followed this advice did better than those who might have bought early because from a session where the Dow had the nerve to try to break its nine historic losing days in a row and the S&P and Nasdaq were trying to end positive as well, the market unfortunately made one of the most miserable showings in history from that time into the close.

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So after the chance that the nine-day losing streak would come to an end, the Dow underwent an incredible awful session with an 1,123 point shellacking down to 42,326 for its 10th straight consecutive decline for the first time since 1974 when the overall market was in a historic collapse itself after the resignation of President Nixon, so this was nothing to be proud of. It was the worst outright decline since August and the only upside mover was UNH, of all things considering what has gone on with that one over the past couple of weeks.

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The S&P did not better with an equally pathetic downside tumble to 5872 as every large technology stocks, plus the financials and energy also took horrible downside beatings and this was its worst showing since August So now the question will be when will this stock now be able to make a new high as several experts have predicted a gain up to 7000 in the new year and let us hope that they are correct.

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The Nasdaq was another pathetic case as it collapsed by 716 down to 19,392 which was its worst showing since September while the real loser, and no surprise here was the Russell 2000 Index of small stocks which got hit for 102 downside points to 2231 for its worst one-day showing since June 2020.

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And look at the VIX which went nuts on the upside to an astounding 27.62 which was its highest level since early August on a fast decline in the market which was able to correct itself after some difficult days at that time.

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So what was the cause of this downside misery and it was Fed Chair Jerome Powell who said that even though the fed funds rate was lowered by ¼ point, it also said that there will now be only two further reductions in 2025 rather than the four that had been previously estimates before today.

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The Fed said that it is cutting its main interest rate for a third time this year, continuing the sharp turnaround begun in September when it started lowering rates from a two-decade high to support the job market.

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The bigger question centers on how much more the Fed will cut next year. A lot is riding on it, particularly after expectations for a series of cuts in 2025 helped the U.S. stock market set an all-time high 57 times so far in 2024.

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Fed officials released projections showing the median expectation among them is for two more cuts to the federal funds rate in 2025, which is down from the four cuts expected just three months ago.

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“We are in a new phase of the process,” he said after easing the rate by a full percentage point to a range of 4.25% to 4.50% since September.

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Asked why Fed officials are looking to slow their cuts, Powell pointed to how the job market looks to be performing well overall and how recent inflation readings have picked up. He also cited uncertainties that will require policy makers to react to upcoming, to-be-determined changes in the economy.

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Powell said some Fed officials, but not all, are also already trying to incorporate uncertainties inherent in a new administration coming into the White House. Worries are rising that the new President’s preference for tariffs and other policies could further increase inflation, along with economic growth.

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“When the path is uncertain, you go a little slower,” Powell said. It’s “not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”

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As a result of this, the yield on the 10-year Treasury rose to 4.51% from 4.40% late Tuesday, which is a notable move for the bond market. The two-year yield, which more closely tracks expectations for Fed action, climbed to 4.35% from 4.25%.

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Stocks of smaller companies did particularly poorly, for example. Many need to borrow to fuel their growth, meaning they can feel more pain when having to pay higher interest rates for loans and as mentioned above, the Russell 2000 Index felt the most pain.

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GIS dropped 3% despite reporting a stronger profit for the latest quarter than expected. The maker of Progresso soups and Cheerios said it will increase its investments in brands to help them grow, which pushed it to cut its forecast for profit this fiscal year.

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NVDA, the former superstar stock responsible for a chunk of the rally to records in recent years, fell to extend its weekslong funk. It has dropped more than 13% from its record set last month and fallen in nine of the last 10 days as its big momentum slows. This was the case here as it was finally doing very well before the 2pm bad news.

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JBL jumped by 7% to help lead the market early after reporting stronger profit and revenue for the latest quarter than analysts expected. The electronics company also raised its forecast for revenue for its full fiscal year.

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In stock markets abroad, London’s FTSE 100 edged up by less than 0.1% after data showed that inflation moved up to 2.6% in November, its highest level in eight months. The Bank of England is also meeting on interest rates this week and will announce its decision today.

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In Japan, where the Bank of Japan will wrap up its own policy meeting on Friday, the Nikkei 225 slipped 0.7%. That was despite a 23.7% jump for Nissan  which said it was in talks on closer collaboration with Honda Motor Co., though no decision had been made on a possible merger. Honda Motor’s stock lost 3%.

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Nissan, Honda and Nissan alliance member Mitsubishi Motors Corp. agreed in August to share components for electric vehicles like batteries and to jointly research software for autonomous driving to adapt better to dramatic changes in the auto industry.

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Earnings this week will see: yesterday – GIS lower and JBL higher; today -  MU, LEN and CAG lower and ACN, KMX, FDS, PAYX higher; tonight – Dow component NKE and FDX, CTAS.

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Economic reports will have: yesterday – November housing starts were lower and building permits, which are an indicator of future activity were higher than expected, and the sad Fed interest rate decision at 2pm; today - final estimate of 3Q G.D.P. came in higher at 3.1%, November L.E.I. later, weekly jobless claims fell to 220K which was down -22K, December Philadelphia Fed Business Index fell to -16.4%, the lowest of the year; Friday – November personal income and spending.