U.S. stocks rebounded dramatically on Thursday, shaking off the previous day’s sell-off which was heavily influenced by the Federal Reserve’s hawkish stance on its interest rate policy. The Dow Jones Industrial Average climbed more than 0.8%, marking the end of ten consecutive days of decline—the longest losing streak in 50 years. The S&P 500 rose by about 0.9%, and the tech-heavy Nasdaq Composite surged more than 1%, signaling renewed investor confidence after volatility rocked the markets. Following the Federal Reserve's recent announcement to cut rates by merely 0.25%, Chair Jerome Powell indicated the board anticipated fewer rate cuts than previously expected, scaling back projections for next year to just two potential cuts.
During the market turmoil, the Federal Reserve's decision was interpreted as what some analysts referred to as a "hawkish cut," impacting major U.S. indices. The decline on Wednesday swept through the markets where the S&P 500 stumbled by nearly 2.9%, its worst day since the summer months. Investors had anticipated greater easing measures, which seemed to be curtailed, highlighting concerns over inflation and economic growth. Powell noted the recent cut was considered "a closer call" than easy reductions seen earlier. Markets had been on edge as the blue-chip Dow, which remains up over 12% this year, was potentially facing yet another down day if the negative trend continued.
On the economic front, new reports offered some reassurance. The third estimate for the third quarter U.S. GDP growth showed the economy expanded at an impressive annualized rate of 3.1%, surpassing earlier projections of 2.8%. This growth report arrived alongside data indicating weekly unemployment claims decreased to 220,000 for the week ending December 14, down from 242,000, signaling resilience within the labor market.
Despite the turbulent markets, certain companies helped stabilize investor sentiment. Darden Restaurants, the parent company of Olive Garden and LongHorn Steakhouses, made notable strides, witnessing its stock price soar by 15.1% after announcing profits for the latest quarter exceeded analysts' expectations. Likewise, Accenture witnessed a 6.7% rise following similar positive financial news and increased forecasts for the fiscal year. Even Amazon, buoyed by its performance—despite facing strikes at several facilities—saw shares add 1.8%. The strike, noted as potentially the largest labor action against the retail giant, didn’t seem to dampen market excitement as Amazon claimed it would not disrupt operations during the busy holiday season.
On the flip side, other tech firms faced difficulties. Micron Technology's stock plummeted by 16.7% after it reported stronger profits than expected but missed revenue projections, reflecting weaker consumer demand expected to continue through the near term. Similarly, Lamb Weston, which produces frozen potato products, dropped 22.6% after falling short of revenue targets and cutting financial forecasts, citing diminishing demand for its products beyond North America.
Interest rates remained mixed within the bond markets after the announcements from the Fed, creating complex conditions for overall market performance. The yield on the 10-year Treasury rose to 4.57%, indicating shifting investor expectations about interest rate futures, and raising concerns for the housing market by keeping mortgage rates high. CEO of homebuilder Lennar, Stuart Miller, criticized the adverse effects felt within the housing sector, stating, "the housing market... proved to be far more challenging as mortgage rates rose" during the quarter. He also noted how persistent affordability limitations exacerbated by higher interest rates negatively impacted performance.
On the international front, stock markets mirrored the turmoil seen domestically, with London’s FTSE 100 falling by 1.1% amid the Bank of England’s latest decision to pause cuts and maintain its rate amid rising inflation. Similarly, Japan's Nikkei 225 fell by 0.7%, reflecting broader concerns over economic growth as central banks globally grapple with maintaining stability.
Overall, U.S. stocks are now stabilizing after one of their most volatile weeks of the year. Investors seem cautiously optimistic about the economic data coming forth, as the Fed's decisions continue to influence market dynamics. They are betting on only one or maybe two potential rate cuts for 2025, much lower than the expectations just weeks prior. Investors have already begun to question whether the market’s previous buoyancy was justified under these new economic forecasts.<\/p>
