Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.
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This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open provides investors with information on everything they need to know, no matter where they are. Do you like what you see? You can subscribe here.
What you need to know today
A cut now, but less going forward
US Federal Reserve lower interest rates by 25 basis points on Wednesday, bringing its overnight lending rate to a target range of 4.25%-4.5%. In the Fed’s chart showing rate expectations over the coming years, the central bank mostly stated Just two rate cuts by 2025less than the four reductions previously planned for September.
Sharp selling in the markets
US markets sold a lot on wednesday. The Dow Jones Industrial Average It lost more than 1,000 points, down 2.58% for its 10th consecutive day. The S&P 500 It went back 2.95% and Nasdaq Composite It sank 3.56%. Pan-European Stoxx 600 — which the trade ended Before the Fed’s decision — it added 0.15%.
Tesla shares reversed
Tesla shares fell 8.3% on Wednesday, their the hardest descent including heavy losses in the broader market since Donald Trump won the US presidential election in November. Although shares are up 75% since the Nov. 5 election, the company’s shares appear “very disconnected from fundamentals,” Barclay’s analysts wrote in a report Wednesday.
Micron’s disappointing leadership
shares of micro It plunged more than 15% in extended trading after the company gave out an orientation that is weaker than expectedalthough it beat earnings expectations for the last quarter. For the current quarter, Micron expects revenue to be around $7.9 billion. According to LSEG, this is much lower than the $8.98 billion expected by analysts.
(PRO) Why were the markets so disappointed
The stock market took a hit after digesting the Fed’s announcement that monetary policy will be tighter than previously forecast in 2025. CNBC’s Sarah Min explores why investors were so disappointedand what market watchers think about the Fed’s decision.
Bottom line
Wednesday’s dramatic sell-off in the markets is a reminder that forecasts influence stock movements much more than current conditions.
The Fed cut the key interest rate by 25 basis points. Borrowing costs will fall and business investment should be encouraged, which should boost job creation and growth. This, in theory, makes the stock go higher.
But investors were already uncertain about the Fed’s rate cut on Wednesday. Before the end of the Fed’s December meeting, the futures market indicated a 98% chance of a 25 basis point cut, CME FedWatch tool. That means investors have already priced the benefits of the rate cut into stocks. In other words, yesterday’s reduction would have little effect on share prices. Investors were perhaps pricing in more optimism than a single rate cut. Just a day ago, investors were betting on an 81.6% chance the Fed would cut rates by another 25 basis points in January.
Fed Chairman Jerome Powell dashed that hope.
“With today’s actions, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly more accommodative,” Powell said. press conference after the meeting. “So we can be more cautious as we consider further adjustments to our policy rates.”
The chance of a 25-point cut next month evaporated to just 6.4%, according to the futures market, after the Fed signaled just two cuts by 2025 after releasing its updated point.
It’s this big paradigm shift — from the expectation that the Fed will go full throttle with cuts to the reality that it can take its foot off the accelerator — that’s sending tremors through the markets.
In other words, it’s like waking up expecting a present on Christmas day, only to find it without a present. This disappointment would not happen at any other time of the year.
As David Russell, global head of market strategy at TradeStation, gloomily put it, “Goodbye punch bowl. No Christmas Fed cheer.”
– CNBC’s Daria Mercado, Jeff Cox, Yun Li, Brian Evans and Lisa Kailai Han contributed to this report.
