Early in the trading session, the S&P 500 showed a 0.5% decrease, though it remained within 2% of its record set precisely two years ago. The Dow Jones Industrial Average was down 141 points or 0.4% by 9:35 a.m. Eastern time, while the Nasdaq composite recorded a 0.6% dip.
For the second consecutive day, some of the top performers from the previous year relinquished a portion of their gains. Tesla, having surged nearly 102% in the past year, dropped by 2.5%. The “Magnificent 7,” comprising major tech stocks that drove a significant portion of Wall Street’s returns last year, also experienced a pullback after their remarkable performances.
The overarching question looming over the market is whether the optimism that fueled a broad stock market rally for nine consecutive weeks at the end of the previous year was justified. This optimism was grounded in the belief that inflation had cooled sufficiently for the Federal Reserve not only to halt interest rate hikes but also to implement multiple cuts throughout the year. Additionally, there is hope that the economy can withstand a potential recession, despite the Fed raising its main interest rate to its highest level since 2001.
Later in the morning, critical reports are expected to provide insights into the validity of these hopes. One report will reveal the number of job openings advertised by U.S. employers at the end of November, while another will shed light on the performance of U.S. manufacturing, an area hit hard by economic challenges.
Wall Street is optimistic that the overall economy is slowing down from its rapid growth last summer to maintain control over inflation, without sliding into a recession.
Economists anticipate the job openings report will show that employers advertised 8.76 million positions at the end of November, compared to 8.73 million at the end of October. The second report is expected to indicate a slight strengthening in U.S. manufacturing, although it continues to contract.
In the afternoon, the Federal Reserve’s release of the minutes from its latest policy meeting is anticipated as the day’s highlight. During the December meeting, policymakers hinted that their aggressive campaign to raise interest rates might be coming to an end. Projections released at the time suggested the median official expected the federal funds rate to decline by 0.75 percentage points through 2024, sparking a significant rally on Wall Street and fueling expectations of further rate cuts.
Currently, traders are betting on a relatively high probability of at least a 1.50 percentage point total cut, according to data from CME Group. The federal funds rate presently sits within a range of 5.25% to 5.50%.
On Wednesday, Treasury yields rose, partially recovering from their sharp declines since the autumn. The yield on the 10-year Treasury increased to 3.99% from 3.94% late Tuesday, adding pressure on the stock market, although it remains well below the 5% level reached in October.
Internationally, stock indexes experienced declines in much of Europe and Asia. France’s CAC 40 fell 1.7%, and South Korea’s Kospi sank 2.3%, while Shanghai’s stocks bucked the trend, rising by 0.2%.
Featured Image: Unsplash