Markets slide after Fed announces fewer rate cuts for 2025, with Treasury yields topping 4.5%
On Wednesday, the Dow Jones Industrial Average recorded its 10th consecutive loss, falling 1,123.03 points, or 2.58 percent, to close at 42,326.87.
This marked its worst losing streak since an 11-day decline in 1974, according to CNBC. The drop was the index's steepest since August and only the second time this year it lost over 1,000 points in a single session.
The S&P 500 declined 2.95 percent to 5,872.16, while the Nasdaq Composite fell 3.56 percent to 19,392.69, with losses intensifying towards the end of trading.
The Federal Reserve’s announcement contributed to the market downturn. The central bank reduced its overnight borrowing rate by a quarter-point to a target range of 4.25 to 4.5 percent, as expected.
However, it signalled a slower pace of rate cuts in 2025, projecting just two reductions compared to the four anticipated in its previous forecast.
Chair Jerome Powell explained, “The move to cut rates in recent months allows us to be more cautious as we consider more adjustments to our policy rate.”
Investors had been expecting the Fed to maintain a more aggressive approach to rate cuts in 2025, which had been driving optimism in the bull market.
The central bank’s cautious outlook pushed Treasury yields higher, with the 10-year yield climbing above 4.5 percent.
Jeffrey Gundlach, CEO of DoubleLine Capital, stated on CNBC’s Closing Bell, “Risk assets and a very highly valued stock market doesn’t like the idea that rate cuts are less likely on both sides of the mandate.”
He noted that the press conference indicated there would not be an aggressive cutting cycle and added, “The market is pretty much in sync with that.”
The Dow’s losing streak began after it closed above 45,000 for the first time on December 4. Since then, the index has lost 6 percent of its value.
David Russell, global head of market strategy at TradeStation, remarked, “Good-bye punch bowl. No Christmas cheer from the Fed.”
He explained that US policymakers anticipate higher inflation and lower unemployment in 2024, adding, “There is simply no reason to be dovish given that outlook.” Russell also observed that with rates no longer clearly restrictive, “It’s a logical time to pause.”
Before Wednesday’s sharp decline, the Dow’s recent losses had been attributed to a rotation out of traditional economy stocks into technology shares, a sector the index underrepresents compared to broader market measures.
However, the Federal Reserve’s cautious stance impacted the entire market. The S&P 500 suffered its worst loss since August, reducing its 2024 gain to 23 percent.
