The major stock market averages all lost ground last week. The Dow Jones Industrial Average fell 1.2% to 43,455. The Standard & Poor’s 500 Index declined 2.1% to 5,871. The NASDAQ Composite got hit the worst, sinking 3.2% to 18,680. Reasons behind the weekly decline include plain and simple profit-taking after the stock market has enjoyed a big runup of late along with a changing outlook on the path of Federal Reserve interest rate cuts.
Market expectations for upcoming interest rate cuts by the Federal Reserve have lessened notably. Last week the Fed indicated it currently sees economic growth, a strong employment market and a continuing inflation concern. Fed Chair Powell stated, “the economy is not sending any signals that we need to be in a hurry to lower rates” and that inflation is edging closer to the Fed’s 2% target “but is not there yet.” Investors have dialed back expectations for rate cuts in 2025 and have less conviction the Fed will cut rates in December.
After Powell’s comments, the likelihood of a Federal Reserve rate cut in December fell to 59%, down from 83% a day earlier, according to CME FedWatch. For all of 2025, investors were expecting four interest rate cuts, but now the market is beginning to think there may only be two rate cuts next year. For us, all these predictions are too far out and not reliable. Importantly for the market now, however, is that there has been a shift in expectations regarding the pace and quantity of interest rate cuts, which is pressuring stock prices lower.
Looking to the week ahead, be ready for a fresh batch of earnings reports. Companies scheduled to report this week include La-Z-Boy, Lowe’s Companies, Walmart, Target, Gap, Palo Alto Networks, Intuit, and Deere. The most anticipated and potentially the most market moving report, however, will be from NVIDIA after the closing bell on Wednesday. NVIDIA, along with Apple and Microsoft, is in the trio of the largest companies by market value and is the poster child for Artificial Intelligence.
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All the best – Southport Station Financial Management, LLC