On Thursday, U.S. stocks closed mostly flat, with an early recovery following a significant drop from the previous session, prompted by the Federal Reserve’s prediction of fewer interest rate cuts than anticipated and a rise in inflation next year.
Economic indicators aligned with the Fed’s outlook, showing that weekly initial jobless claims decreased more than predicted, while the gross domestic product for the third quarter was revised upward to a 3.1% increase from the earlier reported 2.8% rate.
“It clearly conveyed that rates aren’t going to keep declining if inflation doesn’t continue to ease, and we’ve observed inflation rise slightly, which is a concern for the Fed,” commented Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
“You would think that after the sell-off and its magnitude, a bounce would be expected today, and we’re witnessing one, although it lacks strong conviction.”
Preliminary figures reveal that the S&P 500 (.SPX), opens new tab declined by 5.08 points, or 0.09%, ending at 5,867.08 points, while the Nasdaq Composite (.IXIC), opens new tab fell by 23.12 points, or 0.12%, to 19,369.58. The Dow Jones Industrial Average (.DJI), opens new tab increased by 14.41 points, or 0.03%, closing at 42,341.28.
The Dow and S&P 500 experienced their largest one-day percentage decline since early August, while the Nasdaq faced its steepest daily drop since July, following the Fed’s announcement on Wednesday, expecting only two 25 basis point cuts in 2025, which is a half percentage point lower than the forecast from September for the initial year of the new Trump administration.
Market participants now anticipate only one quarter-point rate cut by the middle of 2025 and expect less than two total rate reductions by the year’s end, compared to last week’s expectations of three rate cuts.
Following the economic data, longer-dated Treasury yields rose, with the benchmark 10-year note reaching a near seven-month high of 4.594%.
The CBOE volatility index (.VIX), which gauges Wall Street’s fear, retreated after peaking at a 5-1/2-month high of 28.32 the day before.
