Dow Plunges 1,123 Points as Federal Reserve Outlook Sparks Market Selloff
The Dow Jones Industrial Average plummeted 1,123 points on Wednesday, a 2.6% drop, following a grim outlook from the Federal Reserve. This marked the Dow’s 10th consecutive day of losses, its longest losing streak since 1974, when Gerald Ford was president.
The selloff was triggered by the Fed's announcement that it now expects only two interest rate cuts in 2025, down from the previously projected four. This shift reflects the Fed’s belief that inflation will persist above its target range for longer than anticipated.
Longest Losing Streak Since 1974
The Dow’s 10-day losing streak is the first of its kind since a similar stretch from September 20 to October 4, 1974, when the index fell for 11 consecutive sessions. Despite this prolonged slide, the Dow has lost less than 6% over the streak, while broader markets had remained strong until Wednesday.
The S&P 500 dropped 3%, and the Nasdaq Composite fell 3.6% during Wednesday’s session, joining the Dow in sharp declines.
Fed’s “Hawkish Cut” Shakes Markets
Investors had anticipated the Fed would reduce rates by a quarter point, which it did. However, markets reacted negatively to the Fed’s forecast of fewer rate cuts in 2025, signaling prolonged tight monetary conditions.
Jay Hatfield, CEO and CIO at Infrastructure Capital Advisors, described the move as a "hawkish cut." The shift in expectations was stark: traders had priced in a 98% chance of another rate cut at the Fed’s January meeting, but following Fed Chair Jerome Powell’s press conference, that probability plummeted to just 6%, according to fed funds futures data.
“The market was underwhelmed by the likely future path of interest rates,” said Chris Zaccarelli, CIO at Northlight Asset Management.
Factors Dragging the Dow Lower
UnitedHealth Group has been a significant drag on the Dow, declining 15% this month following the tragic fatal shooting of UnitedHealthcare CEO Brian Thompson. Ironically, the stock rose 3.3% on Wednesday despite the broader market downturn.
Another contributor to the Dow’s decline is Nvidia. While the chipmaker’s stock has soared over 180% this year, it has dropped around 5% in the past month, weighing on the 30-stock index.
Year-to-Date Performance Remains Positive
Despite the recent slide, the Dow remains up 14% in 2024, gaining over 5,000 points for the year. Early market enthusiasm stemmed from stability in election results and optimism over deregulatory and tax policies, fueling initial investor confidence.
