On Thursday, U.S. stocks showed mixed results, giving back part of the early session's rebound gains and continuing the sharp declines from the previous day due to hawkish signals from the Federal Reserve. The Dow Jones Industrial Average ended a streak of ten consecutive days of losses, the longest since 1974. The S&P 500 and the Nasdaq Composite have still gained 23% and 29% this year, respectively, despite this week's market volatility.
Federal Reserve's Hawkish Signals Weigh on Market Sentiment
In its latest meeting, the Federal Reserve announced it expects to cut rates only twice by 2025, each by 25 basis points, less than the four cuts anticipated in September. This signals a more cautious approach to future monetary policy adjustments. Additionally, Fed officials emphasized that rates would not be lowered further if inflation does not consistently decline.
This hawkish stance pressures market sentiment. Wednesday's news caused the Dow and S&P 500 to experience their largest single-day drops since August, while the Nasdaq saw its biggest single-day loss since July. Nonetheless, the three major indices have performed impressively this year, with the Dow up over 12%, the S&P 500 up 23%, and the Nasdaq up 29%.
Economic Data Aligns with Fed's Expectations
The latest economic data also support the Fed's view. Initial jobless claims fell more than expected last week, and the U.S. GDP growth rate for the third quarter was revised up from 2.8% to 3.1%. The strong economic figures pushed longer-term Treasury yields higher, with the 10-year yield reaching 4.594%, a near seven-month high.
Tim Ghriskey, a senior strategist at New York's Ingalls & Snyder, noted that the Fed has sent a clear signal that if inflation does not continue to decline, rates will not be further reduced. Recent data showing a slight rebound in inflation keeps the Fed vigilant and has increased market volatility.
Market Volatility Eases Slightly
As a measure of market fear, the CBOE Volatility Index (VIX) fell to 24.09 on Thursday, after reaching a five-and-a-half-month high of 27.62 on Wednesday. Additionally, the banking sector rose by 0.3% on Thursday, benefiting from the high yield environment and the potential deregulation of the banking industry under the incoming Trump administration.
Summary and Outlook
The Fed's hawkish signals, combined with strong economic data, have unsettled the market. Investors remain cautious about future monetary policy uncertainty while keeping an eye on macroeconomic indicators and corporate profitability. Despite recent market volatility, the three major indices have recorded strong gains this year, and future trends will depend on inflation and interest rate dynamics as well as further developments in policy and economic expectations.
