US stocks took a significant hit on December 18, marking one of the worst trading days of the year. On Wednesday, the U.S. Federal Reserve reduced interest rates by 25 basis points, adjusting the overnight borrowing rate to a target range of 4.25%-4.5%, followed by lower stock rates. Investors were anticipating the rate cut but more was expected for 2025. While the Federal Reserve hinted at two cuts in 2025, the market investors were expecting four cuts in the upcoming year.
The announcement affected the overall market as the S&P 500 fell by 2.9%, marking one of the biggest losses of the year. NASDAQ Composite dropped by 3.6% while the Dow Jones Industrial Average lost 2.6% or 1,123 points.
Fed Slashes Interest Rates
On December 18, the Fed announced cuts in the main interest rate for the third time this year. The rates have been cut by 25 basis points, taking its overnight borrowing rate to a target range of 4.2%-4.5%. In September, four rate cuts were projected for 2025 which is now deducted to just two in the Fed’s dot plot. The central bank started lowering rates from a two-decade high to enhance the job market.
Jerome Powell, Chair of the Federal said, “We are in a new phase of the process. When the path is uncertain, you go a little slower, not unlike driving on a foggy night or walking into a dark room full of furniture. You just slow down.”
Market Reacts to Fed Rate Cut
The stocks stumbled following the announcement of rate cuts and forecasts for 2025. Investors were disappointed with the few rate cuts and sold away their stakes in government offices after the announcement of the central bank. The post-announcement sell-off dipped all the record gains on December 18.
On Wall Street, General Mills stocks plunged by 3.1% even after reporting stronger profit than expected. Nvidia, the pulling force of Wall Street’s rally also fell by 1.1%, continuing its week-long dip. Tesla saw a dip of 8.3% in its stock prices, one of its heavy losses since the US Presidential Elections. Micron Technologies reported huge profits for the fiscal year but the stocks plunged more than 15% in extended trading.
Stock Market Outlook
Despite the steep market decline, few companies managed to avoid the trend, as their stock prices gained. Jambil shares gained by 7.3%, which helped the market to lead, followed by its strong profit and revenue report for the last quarter. Internationally, the London FTSE 100 gained slightly by under 0.1% after data revealed inflation surged to 2.6% in November.
The Federal Reserve’s rate cut and its cautious outlook for 2025 have triggered a sharp market reaction, with major indices like the S&P 500 and NASDAQ experiencing significant losses. While the reduced rate forecast disappointed many investors, some stocks, like Jambil, saw positive movement. Overall, the market remains volatile as investors digest the Fed’s stance on future rate cuts, with global markets also reacting to inflationary concerns, as seen in FTSE 100. Investors will need to closely monitor these developments moving forward.
