TNC Daily Open: Markets Hit by Fewer Fed Cut Expectations

TNC Daily Open: Predicting Markets Is Futile

This report is from today’s TNC’s Daily Open, our international markets update.

TNC Daily Open keeps investors informed on everything they need to know, no matter where they are.

What To Note Today

A cut today, but fewer forthcoming

Interest rates were cut by 25 basis points by the U.S. Federal Reserve on Wednesday, bringing the overnight borrowing rate down to a target range of 4.25 to 4.5%. The Fed primarily suggested only two rate cuts for 2025 in its dot plot showing forecasts for rates in the upcoming years, which is less than the four cuts that were first anticipated in September.

Bank of Japan maintains rates

On Thursday, the Bank of Japan maintained its benchmark interest rate at 0.25%. The yen then fell to its lowest level against the dollar in a month. Analysts had differing opinions on the BOJ’s decision: according to a CNBC survey, 54% of participants believed the BOJ would hold, while a Reuters poll of economists predicted the BOJ would rise.

Significant market sell-off

On Wednesday, U.S. markets saw a steep decline. For the tenth consecutive day, the Dow Jones Industrial Average fell 2.58%, or more than 1,000 points. The Nasdaq Composite fell 3.56% while the S&P 500 fell 2.95%. Asia-Pacific markets followed Wall Street’s decline on Thursday. The Kospi index in South Korea experienced one of the worst declines in the region, plunging as much as 1.8%.

Micron’s disappointing advice

Despite beating forecasts on its most recent quarter’s earnings, Micron’s shares fell more than 15% in extended trade when the firm provided weaker-than-expected guidance. Micron anticipates revenue to reach approximately $7.9 billion for the current quarter. According to LSEG, that is significantly less than the $8.98 billion experts had predicted.

Forecasts for European stocks in 2025

Major investment banks are releasing their 2025 outlooks for the European market as the year comes to a close. Nearly all of them voiced concerns about trade tensions and geopolitics, but their opinions range from cautious optimism to bullishness.

Bottom Line

The sharp market sell-off on Wednesday serves as a clear reminder that projections have a far greater impact on stock movements than the actual situation.

The Fed made a 25 basis point decrease to its main interest rate. Corporate investment should be encouraged and borrowing costs will decrease, which should increase GDP and create jobs. Theoretically, this raises stock prices.

However, markets were already optimistic about Wednesday’s Fed decrease. According to the CME FedWatch Tool, the futures market predicted a 25 basis point drop with a 98% chance before the Fed’s December meeting ended. This indicates that the advantages of the rate cut had already been factored into stock prices by investors. Put differently, stock prices would not be much impacted by yesterday’s decrease.

It’s possible that investors had already factored in many rate cuts. Investors were placing bets on a 20.8% possibility that the Fed would cut rates to 4%–4.25% in January a week ago.

Those aspirations were shattered by Fed Chair Jerome Powell.

Powell stated during his news conference after the meeting, “With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate.”

Following the Fed’s presentation of its updated dot plot, which indicated only two cuts for 2025, the futures market reduced the likelihood of a 25 point cut next month to 8.6%.

The markets are trembling because of this change from expectations that the Fed will implement cuts aggressively to the possibility that it may even slow down.

In other words, it’s like waking up on Christmas Day expecting a gift only to discover that you have none. There would be no other time of year when such disappointment would occur.

“Good-bye punch bowl,” said David Russell, TradeStation’s worldwide head of market strategy, glumly. The Fed has no Christmas cheer.

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