The stock market experienced significant volatility this week, starting with optimism for a “Santa Rally” but quickly shifting to uncertainty after the Federal Reserve’s hawkish statement. However, positive inflation data revived hopes for year-end gains. Historically, the stock market tends to rally in late December, and certain stocks have shown strong year-end performance in the past.
Lower-than-expected November inflation data offered temporary market relief, but investor caution persists following the Federal Reserve’s hawkish policy pivot. While modest gains were seen across major indices, including a notable increase in the real estate sector, the Fed’s commitment to restrictive monetary policy remains a dominant factor. Gold prices rose, the US dollar weakened, and bond yields fell, reflecting investor sentiment.
US markets closed mixed on Thursday, with the Dow ending a losing streak despite the Fed forecasting fewer 2025 rate cuts and higher inflation. Positive economic data, including falling jobless claims and revised GDP growth, were offset by losses in several S&P 500 sectors. Asian and European markets experienced declines, with oil prices falling and the dollar strengthening. US futures indicate a negative opening on Friday.
Following a 25 basis points rate cut and hawkish commentary from Fed Chair Jerome Powell, markets slipped for two days. Louis Navellier anticipates up to four Fed rate cuts in 2025 due to the potential for falling interest rates in the Eurozone and political instability in Europe. He views the recent market pullback as a possible buying opportunity.
China’s central bank kept its benchmark lending rates unchanged, maintaining the one-year LPR at 3.1% and the five-year LPR at 3.6%. This decision contrasts with the recent US Federal Reserve rate cut and reflects China’s cautious approach to stimulating economic growth while managing a weakening yuan. The move impacts corporate and household loans, along with mortgage rates.
US stock futures rose on Thursday after the Federal Reserve’s rate cut, which was less dovish than expected. Markets reacted negatively on Wednesday to the revised economic projections that signaled fewer rate cuts in 2025. Key economic data releases this week will provide further insight into economic health and market direction.
Bitcoin ETFs experienced a pre-market surge, with BITB, ARKB, GBTC, FBTC, and IBIT all showing gains. This upward trend occurred despite Federal Reserve Chair Jerome Powell stating the central bank won’t own Bitcoin. Bitcoin’s price remains above $100,000, fueled by optimism about pro-crypto policies. However, legislative proposals for a Bitcoin reserve might face opposition from the Fed.
The stock market experienced a downturn after the Federal Reserve’s decision to lower interest rates less aggressively than anticipated. Investors had expected more significant rate reductions, leading to sell-offs in major indexes. The Fed’s cautious approach reflects concerns about inflation, while expert opinions vary on the market’s reaction.
The CNN Business Fear & Greed Index dropped to 33.9, indicating market fear. The Dow fell over 1,100 points for its tenth straight loss. The Fed lowered interest rates but signaled fewer future cuts, contributing to the negative sentiment. Economic data, including a widening current account deficit and falling housing starts, added to investor concerns.
The ProShares UltraPro QQQ (TQQQ) ETF plunged 10.81% to $82.09 after the Federal Reserve’s December meeting. The Fed’s projection of only two additional rate cuts in 2025, coupled with higher inflation expectations, dampened investor enthusiasm for tech stocks and subsequently impacted TQQQ, which is heavily weighted in the tech sector. The decline reflects broader market concerns about the economic outlook and the higher interest rate environment.
