AE Wealth Management: Market Minute 12/18/24 — Markets Pull Back in Response to Fed Announcement
Market Minute
December 18, 2024
Markets experienced steep declines Wednesday, with the Dow falling 1,123 points, the S&P 500 losing 2.9%, and the Nasdaq sliding 3.6%.1 These one-day losses rattled investors as the Federal Reserve revealed a more conservative approach to interest rate cuts for 2025.
The Fed announced its third rate cut of the year2, reducing the key rate by a quarter-point. However, investors were caught off guard by projections signaling just two additional cuts next year, fewer than initially anticipated. This revision disrupted the market’s optimistic outlook, leading to sharp sell-offs across equities and a surge in Treasury yields as the broader investment landscape absorbed the news.
After a year of strong performance—where the main U.S. stock market index climbed 1,138 points or 23.86%-and lofty expectations3, this pullback highlight the natural ebb and flow of the market. This is what normal volatility looks like, something we have not seen very often this year. The sharp declines are a reminder that markets do not move in one direction indefinitely, and corrections can be a necessary and healthy part of the long-term growth cycle.
Many investors took this as an opportunity to step back, recalibrate expectations, and reallocate portfolios following a period of elevated returns. Moving forward, this situation will need to be watched to see if we continue downward; oftentimes there is a snap back because there was an overreaction to the initial news. Historically, markets have shown a tendency to rebound strongly after such reactions once the dust settles.
While it’s natural to feel uneasy in times of market turbulence, it’s important to maintain perspective. Pullbacks like these are not uncommon. They allow investors to make adjustments and refocus their goals in light of current realities. Staying calm and leaning on a disciplined financial plan is the best response to temporary downside volatility.
If you find yourself concerned about these developments, take a moment to reflect on your broader financial goals. Short-term market events, while headline-worthy, should not drive panic or hasty decisions. Remember to focus on the bigger picture and lean on a plan that aligns with your long-term objectives.
Should you have questions about how this market shift might impact your portfolio, connect with your advisor. Now is an excellent time to ensure your investment strategy remains balanced and prepared to weather ongoing fluctuations. Staying calm, informed, and committed to your financial plan is key to navigating volatility successfully.
1 AP News. “US stocks fall sharply and Dow loses 1,100 points after the Fed hints at just 2 rate cuts for 2025.” Retrieved from AP News.
2 NBC News. “Fed cuts key interest rate but signals elevated inflation is …” This article confirms that it’s the central bank’s third rate cut of 2024, reducing the Fed’s target rate to between 4.25% and 4.5%. Retrieved from NBC News.
3 Trading Economics. “United States Stock Market Index – Quote – Chart.” This source indicates that the main stock market index in the United States (US500) increased 1,138 points or 23.86% since the beginning of 2024. Retrieved from Trading Economics.
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