Stocks decline again as US Fed won’t budge on rate cuts

Investing

Major stock indexes dipped again Wednesday as an afternoon report from the Federal Reserve revealed the central bank’s attitude toward interest rate cuts has not shifted as much as some optimistic market participants hoped.
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Stocks are limping so far in 2024.

AFP via Getty Images

Key Facts

Coming off of a two-month-worst 1.6% loss, the tech-heavy Nasdaq dipped a further 1.1% by mid-afternoon Wednesday, extending its 2024 decline to nearly 3%.

The Dow Jones Industrial Average and S&P 500 fell about 0.8% apiece Wednesday, though the less tech-concentrated indexes’ losses this week have been far less severe than the Nasdaq’s.

Stocks maintained their morning losses following the 2 p.m. release of minutes from the Fed’s December meeting, revealing that though officials unanimously agreed they expect to cut rates in 2024, rates may remain at the current, historically high level “for some time.”

That’s likely not what investors wanted to hear, considering anticipation for growth-friendly cuts to rates provided the backdrop for significant stock market gains at the conclusion of 2023.

Still, the market overwhelmingly believes the Fed’s caution is likely a bluff, as futures trades imply interest rates will come down by twice as much this year as the Fed indicated last month.

Key Background

The Fed minutes shed further light on the central bank’s thinking during the December conclave of its policy-setting Open Markets Committee. That meeting featured the third-consecutive time the Fed voted to keep rates the same, but notably shared future projections from Fed staff which indicated a consensus of several rate cuts in 2024, coinciding with tangible progress in inflation (price increases initially spurred rate hikes). Lower rates typically boost stock prices, as lower borrowing costs bump corporate profits.

Contra

Though the headline losses this week, especially for tech stocks, look brutal, analysts suggest angst surrounding 2024’s early losses may be overblown. Craig Erlam, senior market analyst at Oanda, chalked up the early losses to “profit-taking” after last year’s “remarkable” finish, while Sevens Report founder Tom Essaye concurred much of the tumble came due to “natural rebalancing” from fund managers at the start of the calendar year, funneling money away from the 2023 darling tech sector toward more equally weighted portfolios.

Surprising Fact

Again slumping Wednesday were the seven most valuable tech stocks, as the group including Apple and Tesla lost a combined $47 billion in market capitalization. The group has lost a total of $285 billion of market value through the first two trading sessions of the year.

This post originally appeared on Forbes.com

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