U.S. stock markets experienced a decline on Tuesday, with the Dow Jones Industrial Average marking its ninth consecutive session of losses. Investors were cautious as they awaited the Federal Reserve's final policy announcement of the year.
Economic indicators suggested that consumer spending remained strong, with U.S. retail sales surpassing expectations in November, driven by a surge in motor vehicle purchases. This data reflects a resilient economy, yet the anticipation surrounding the Fed's decision has led to increased volatility in the markets.
The focus is on the Fed's upcoming announcement, with market participants almost fully pricing in a 25 basis point interest rate cut. Investors are particularly interested in the Fed's summary of economic projections (SEP) and comments from Chair Jerome Powell, which may provide insights into the central bank's future rate-cutting strategy. Analysts suggest that the Fed may adopt a more measured approach to easing, particularly in light of potential growth-stimulating policies from the incoming Trump administration, which could reignite inflationary pressures.
The Dow Jones Industrial Average fell by 267.58 points, or 0.61%, closing at 43,449.90. The S&P 500 and Nasdaq Composite also recorded declines, with the S&P 500 down 23.47 points (0.39%) to 6,050.61 and the Nasdaq dropping 64.83 points (0.32%) to 20,109.06. Despite the Nasdaq reaching a record high on Monday and the S&P 500 showing a nearly 27% increase for the year, the Dow's recent performance has been lackluster, marking its longest losing streak since February 1978.
Market analysts attribute this downturn to a combination of pre-Fed jitters and the broader economic landscape. The uncertainty surrounding the Fed's upcoming decisions has led to a cautious market environment. With nearly all major S&P sectors experiencing declines, industrials led the way with a 0.9% drop, while consumer discretionary stocks were the only sector to advance, buoyed by a significant gain in Tesla shares following positive price target adjustments from analysts.
As investors braced for a potentially "hawkish cut" from the Federal Reserve, Treasury yields fluctuated throughout the day. The CBOE Volatility Index, often referred to as Wall Street's "fear gauge," rose above 15 for the first time in nearly three weeks, closing at 15.87, its highest level since November 21. This increase in volatility reflects the market's apprehension as traders navigate the uncertain landscape ahead of the Fed's announcement. The small-cap Russell 2000 index, which is generally more sensitive to interest rate changes, fell by 1.2%, further indicating the cautious sentiment prevailing in the market. In contrast, Pfizer shares surged by 4.7% after the pharmaceutical company forecasted 2025 profits that aligned closely with Wall Street expectations.
The breadth of the market showed a significant imbalance, with declining issues outnumbering advancers on the NYSE and Nasdaq. The S&P 500 recorded new highs and lows, while the Nasdaq Composite saw new highs against new lows. This disparity highlights the challenges faced by many stocks in the current environment, as investors remain cautious and selective in their trading strategies.
Trading volume on U.S. exchanges reached 16.17 billion shares, surpassing the 14.11 billion average for the last 20 trading days. This uptick in volume suggests heightened activity as investors react to the evolving economic landscape and prepare for the Fed's impending decisions. The focus remains on how the Fed will navigate its monetary policy in the face of a resilient economy and persistent inflationary pressures.