Overview
On Thursday, Wall Street’s main indexes closed lower after Federal Reserve Chair Jerome Powell dashed hopes for a December interest rate cut, stating that the central bank is not in a rush to ease monetary policy. The Dow Jones Industrial Average declined 0.47%, the S&P 500 fell 0.60%, and the Nasdaq Composite dropped 0.64%, as Powell’s comments signaled caution in the Fed’s approach given the solid job market and inflation still above the 2% target.
Investors had been optimistic about a 25-basis point rate cut in December, with the probability sitting at 62%, down from 82.5% earlier in the week. Powell’s statement at a Dallas Fed event emphasized that, with the economy growing and inflation remaining elevated, the Fed would proceed cautiously. Economic data also played a role in market sentiment, with October’s Producer Price Index (PPI) rising 0.2%, matching forecasts, and the annual rise of 2.4% slightly above expectations. Weekly jobless claims dropped to 217,000, underscoring resilience in the labor market.
Defense stocks weighed heavily on the industrials sector, with RTX Corp and General Dynamics leading declines, following a post-election rally. Meanwhile, Walt Disney saw a 6% rally, buoying the Dow, after reporting earnings that exceeded Wall Street estimates and projecting strong growth in coming years.
- Dow Jones Industrial Average: Fell 0.47% to 43,750.86
- S&P 500: Lost 0.60% to 5,949.17
- Nasdaq Composite: Dropped 0.64% to 19,107.65
Fear & Greed Index
Fear – Sentiment shifted as Powell’s comments and steady inflation data led to reduced optimism for a December rate cut.
Sector Performance
- Winners:
- Communication Services: Supported by Walt Disney’s strong performance, the sector showed modest gains amid an otherwise down market.
- Consumer Discretionary: Tapestry rose 12.8% as it announced the termination of its deal with Capri Holdings, offering an upside for the sector.
- Losers:
- Industrials: Declined 1.7%, led by losses in defense stocks, including RTX Corp and General Dynamics, as investor enthusiasm from the election rally faded.
- Consumer Discretionary – Electric Vehicles: Electric vehicle stocks like Tesla and Rivian faced significant losses as reports surfaced that Trump’s team plans to eliminate the $7,500 EV tax credit in upcoming tax reforms.
Key Movers
- Walt Disney (DIS): Rose 6% after reporting better-than-expected earnings and providing strong forward guidance, boosting the communication services sector.
- Tesla (TSLA): Fell 5.8% as reports indicated potential cuts to EV tax credits under the new administration’s tax policies.
- Tapestry (TPR): Gained 12.8% as it announced the termination of its $8.5 billion merger with Capri Holdings, pushing the stock to its highest level since 2013.
Economic Data
- Producer Price Index (PPI): Rose 0.2% in October, aligning with expectations, with a 2.4% annual increase, slightly above estimates.
- Jobless Claims: Dropped by 4,000 to 217,000 for the week, indicating a stable labor market and supporting Powell’s cautious stance.
Outlook
Investors are now re-evaluating expectations for a December rate cut, with the likelihood decreasing after Powell’s remarks and steady inflation data. While the Fed remains open to future adjustments, officials are becoming more cautious due to steady job market growth, potential wage inflation from union settlements, and anticipated tariff increases under Trump’s administration. As a result, investor focus may shift to sectors resilient against rising interest rates, while growth-sensitive sectors like tech and electric vehicles could face challenges.
As policy changes, such as potential cuts to EV tax credits, become more likely, sectors dependent on regulatory support may face added volatility. Defensive and consumer-focused sectors could gain appeal as investors adapt to shifting economic policies. The market may remain mixed, balancing Powell’s conservative approach with fiscal changes on the horizon under the new administration.