Traders work on the floor of the New York Stock Exchange (NYSE) in New York City.
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This report comes from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open keeps investors updated on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
There are cuts now, but there will be fewer in the future
Fed The rate cut was 25 basis points on Wednesday, bringing the overnight borrowing rate to a target range of 4.25%-4.5%. In the Fed’s dot plot showing its interest rate expectations for the next few years, the Fed mostly said it would cut interest rates only twice in 2025, down from the four rate cuts expected before September.
Market sells off sharply
U.S. markets sold off sharply on Wednesday. this Dow Jones Industrial Average The price dropped by more than 1,000 points, or 2.58%, marking the tenth consecutive trading day of decline. this S&P 500 Index Down 2.95% Nasdaq Index down 3.56%. Pan-European Stoke 600 – ended trade ahead of Fed decision – up 0.15%.
Tesla stock price reverses
Tesla The stock fell 8.3% on Wednesday amid a sharp decline in the broader market, its biggest drop since Donald Trump won the U.S. presidential election. Barclays analysts wrote in a note on Wednesday that the company’s stock price appears to be “broadly disconnected from fundamentals,” despite rising 75% since the Nov. 5 election.
Micron’s guidance disappoints
shares Micron Although the company beat earnings estimates last quarter, it gave guidance that was significantly lower than expected, causing the company to plunge more than 15% in after-hours trading. Micron expects revenue for this quarter to be approximately $7.9 billion. That was well below analysts’ expectations of $8.98 billion, according to LSEG.
(PRO) Why the market is so disappointed
Stocks were hit hard after pricing in the Federal Reserve’s forecast that monetary policy would continue to be tighter in 2025 than previously forecast. CNBC’s Sarah Min explores why investors are so disappointed and what market observers think of the Fed’s decision.
bottom line
Wednesday’s sharp sell-off in the market was a stark reminder that forecasts have a far greater impact on stock movements than current conditions.
The Federal Reserve will cut its key interest rate by 25 basis points. Borrowing costs will fall and business investment will be stimulated, creating jobs and boosting economic growth. In theory, this in turn should push stocks higher.
But investors are already confident that the Federal Reserve will cut interest rates on Wednesday. According to the Fed, before the end of the Fed’s December meeting, futures markets are pricing in a 98% chance of a 25 basis point rate cut. CME Group Fed Watch Tool. This means that investors have already priced in the benefits of lower interest rates in the stock market. In other words, yesterday’s rate cut had little impact on stock prices. Investors may be pricing in more optimism than a single rate cut. Just a day ago, investors bet on an 81.6% chance that the Federal Reserve would cut interest rates by another 25 basis points in January.
Fed Chairman Jerome Powell dashed that hope.
“With today’s action, we have lowered the policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Powell said at the meeting. His post-meeting press conference. “As a result, we can be more cautious when considering further adjustments to policy rates.”
The odds of a quarter-percentage point rate cut next month fell to just 6.4% after the Fed released an updated dot plot showing just two rate cuts in 2025, according to futures market data.
It’s this huge paradigm shift – from hopes that the Fed will go all-in on spending cuts to the reality that the Fed might even take its foot off the gas pedal – that is sending shockwaves through the markets.
In other words: It’s like waking up at Christmas expecting a gift, only to find out you’ve lost it. This disappointment doesn’t happen any other time of the year.
As David Russell, head of global market strategy at TradeStation, glumly put it, “Goodbye punch bowl. No more Christmas cheer at the Fed.”
—CNBC’s Daria Mercado, Jeff Cox, Yun Li, Brian Evans and Lisa Kailai Han contributed to this report.
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