U.S. equities are generating excitement in anticipation of the Federal Reserve's projected stance.
U.S. equities are generating excitement in anticipation of the Federal Reserve's projected stance.
Wall Street experienced a significant downturn following the Federal Reserve's interest rate announcement. On Wednesday, the Dow Jones plummeted 2.6% to end at 42,326 points. The S&P 500 took a 2.9% dive to 5,872, and the Nasdaq, with its tech-heavy composition, sank 3.6% to 19,392. The interest rate-sensitive tech stocks were particularly affected by the Fed's decision, and many investors may have seen this as an opportunity to cash out after the US indices reached new highs.
As anticipated, the Fed slashed interest rates once more at the year's conclusion. Under the leadership of Fed Chair Jerome Powell, the key interest rate was lowered by a quarter point, now ranging between 4.25% and 4.50%. In contrast to previous forecasts, the central bank signaled a more aggressive stance for 2025, suggesting a slower easing of monetary policy.
In September, the Fed instigated a rate hike, followed by another in November. Therefore, this marks the third time the Fed has eased monetary policy in 2022. Powell stated at a press conference, "We are at or near the point where we can slow down our rate cuts." He added, "From here on, it's a new phase. We will be cautious with further cuts." Despite the more restrained monetary policy, it is now approaching a neutral level. And the Fed now predicts only two additional quarter-point rate cuts by the end of 2025, half a percentage point less than anticipated.
In response to the rate decision, the dollar gained strength. The dollar index climbed by more than 1%, pushing the euro below $1.04, to around $1.0475. Long-term US Treasury yields rose dramatically, with the 10-year US Treasury note yield rising by 10.6 basis points to 4.51%.
Gold prices faced pressure. The price of an ounce of gold fell by over 2%. A stronger dollar makes gold more expensive for buyers outside the dollar zone, while higher interest rates diminish gold's appeal, which does not yield interest.
Birkenstock's stock price soared by around 2%, following the sandal maker's release of strong financial reports and an upbeat outlook. The company raised the average sales price of its products by 8%.
There were also discussions about a potential merger between Japanese automakers Honda and Nissan. As a result, Nissan's shares in Tokyo surged by almost 24%. Conversely, Ford and General Motors (GM) shares both declined by around 2% on Wall Street.
General Mills shares dropped by 3.1%, after the Haagen-Dazs manufacturer reduced its earnings forecast for the year, attributing the decline to higher-than-projected advertising expenses.
Profit-taking caused Tesla's share price, which reached a record high during the day, to plummet by 8.3% following the close of trading.
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The interest rate-sensitive tech stocks, being affected by the Fed's decision, might have seen a decline in their share prices.After the Fed announced its plan for slower easing of monetary policy, the 10-year US Treasury note yield rose by 10.6 basis points, potentially impacting the share prices of bond-sensitive stocks.