Worst Two-Day Start of the Year for S&P 500 Since 2015 Amid Rate Cut Uncertainty

Summary

  • The benchmark has seen its first consecutive declines since the start of 2015, marking its worst start to a year.
  • Despite the rise of the S&P 500 in the final months of 2023, investors remain cautious in 2024, anticipating the U.S. central bank’s potential rate cuts.
  • Shares of rate-sensitive megacap stocks, including Nvidia, Apple, and Tesla, witnessed significant declines, whereas airline stocks also suffered following an increase in oil prices due to disruptions in Libya’s top oilfield.
  • Financial sectors traded lower, with Charles Schwab and Blackstone suffering after being downgraded by Goldman Sachs.

Unprecedented Beginning for the Year

The benchmark has initiated the year with back-to-back drops for the first time since 2015. Such a poor start hasn’t been witnessed since late-October 2015. This drop stands in stark contrast to the remarkable performance of the three major Wall Street benchmarks in the last two months of the previous year. In the past week, the S&P 500 was in close proximity to its all-time closing high as investors speculated on a bold rate-cutting plan following indications of easing inflation.

Trepidation Among Investors

A cautious sentiment prevails among investors entering 2024, specifically regarding potential rate cuts by the U.S. central bank. Uncertainties about the speed of these implementations persist. Although a hold on rates by the Fed in January is highly likely, a 25 basis point rate cut in March has a 67% likelihood, according to CMEGroup’s FedWatch tool.

Insights from Fed Minutes

Fed minutes released on Wednesday indicate policymakers believe inflation is being controlled, with decreased “upside risks” and concern about how “overly restrictive” monetary policy could impact the economy. However, there is still ambiguity about the commencement of rate cuts.

Stock Market Reactions

Rate-sensitive megacap stocks, including Nvidia, Apple, and Tesla, experienced a decline, while the S&P 500 decreased by 38.02 points, and the Nasdaq Composite lost 173.73 points. The Dow Jones Industrial Average also fell by 284.85 points. Conversely, Citigroup gained for a second day due to a price target upgrade and a positive report from Wells Fargo.

This financial climate, marked by cautious anticipation of rate cuts, resulting in volatile stock performances, could significantly impact the FOREX market and other trading assets, prompting traders to revisit their strategies.

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