US Stocks Dropped as Fed Resolution Loomed and Market Fears Rose

 

US equities pulled back on Tuesday (Dec. 17th), accompanied by nine consecutive declines in the Dow Jones, because investors took a cautious approach ahead of the Federal Reserve's (Fed) final monetary policy announcement in 2024.

 

Investors focused on the Fed's interest rate decision statement today (December 18th), with almost 100% betting that the Fed would cut rates by 25 basis points. Attention is centered on the Fed's Summary of Economic Projections (SEP) and Chair Jerome Powell's comments which might specify the likelihood of rate cuts in 2025.

 

US consumer spending remained robust. November’s retail sales growth was better than expected, matching the economic impulse. However, persistent sticky inflation and the incoming Trump administration's projected growth-stimulating policies could re-spark price increases. As a result, the Fed may slow the pace of rate cuts.

 

Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah, said it was normal for markets to express uncertainty and stress as they did not know what the SEP and Powell would say.

 

On Tuesday, U.S. Treasury yields were volatile as investors prepared for the Fed's hawkish rate cut.

 

Almost all of the 11 major S&P sectors dropped, led by the industrial sector, which lost 0.9%. Consumer discretionary was the only gainer, fueled by a 3.64% rise in Tesla (NASDAQ: TSLA). This comes after Tesla received price target upgrades from Mizuho (NYSE: MFG) and Wedbush. Pfizer (NYSE: PFE) closed up 4.67%, as its 2025 profit forecast roughly met Wall Street's expectations.

 

Wall Street's fear measurement, the CBOE Volatility Index initially climbed above 15 in nearly three weeks, closing at 15.87 and hitting the high since November 21st. The Russell 2000 index for small-cap stocks closed down 1.18% since it is more sensitive to rate hikes.

 

The Nasdaq rose to a new all-time high on Monday (Dec. 16th). The S&P 500 gained nearly 27% so far in 2024. The Dow Jones suffered from nine consecutive sessions of declines, marking its longest losing slump since February 1978.