Fabrice Cabaud
Major market averages closed lower Wednesday as Wall Street saw another day of fresh losses to start the 2024 business year.
Suffering the most was the tech-focused Nasdaq Composite (IND COMP.) since it ended lower by 1.1%the S&P 500 benchmark index (SP500) ended in red for 0.8%and the blue-chip Dow (dji) concluded lower by 0.7%.
“There is a lot of pessimism in these numbers. To start, news emerged that during its December meeting, the Federal Reserve reiterated that three interest rate cuts are likely by 2024. However, seeing a significant economic uncertainty, it became clear that the timing of these cuts, if they occur, is up in the air,” said Taking Alpha analyst Daniel Jones.
“Clearly the market is bearish right now. But for those who are bullish like me, this could be an opportunity to trade and buy,” Jones added.
From a sector standpoint, eight of the eleven S&P segments finished lower, led by real estate. The three areas that managed to make profits were Energy, Communications Services and Public Utilities.
The yield on the 10-year Treasury bond (US10Y) fell 2 basis points to 3.90%. At the same time, the yield on the two-year Treasury bond (US2Y) was almost even at 4.32%.
“There have been several factors behind (the recent market moves), but a big one was growing skepticism about the possibility of near-term rate cuts,” wrote Deutsche Bank's Jim Reid. “For example, at the end of 2023, futures were fully pricing in a Fed rate cut for March, but after yesterday's session, that probability had dropped to 87% and overnight it has dropped even further. more up to 85%”.
“Similarly, at the ECB, the probability of a cut by March has fallen from 71% last Thursday to 61% yesterday and 59% overnight. Clearly, investors are still pricing in that a rate cut in the Q1 is more likely than not, but there has been a little more doubt in the last 48 hours about whether the aggressive rate cuts planned for 2024 will actually end up happening.
Federal Reserve officials judged that interest rate cuts will likely begin in 2024, although the policy path is highly uncertain, according to Federal Open Market Committee minutes from the Dec. 12-13 meeting released on Wednesday.
Several members noted that it might be necessary to keep the benchmark rate high if inflation remained above target.
On the economic front, job postings fell more than expected in November. Job openings fell to 8.79 billion in November, compared to the consensus figure of 8.85 billion.
At the same time, the ISM manufacturing index for December stood at 47.4, better than the market forecast of 47.1.
