Federal Reserve Grinch Tries to Steal Christmas from Stock Market

The S&P 500 (Index: SPX) had a rough week just ahead of the Christmas and New Years holidays.

The rough going was courtesy of the grinches at the Federal Reserve, who did their best to steal Christmas from investors by putting the kibosh on the prospects for more than two interest rate cuts in 2025. Since we covered the immediate aftermath of their Scrooge-like pronouncements, all that’s left to cover is what happened after that.

What happened after the Fed’s final announcement of 2024 is the S&P 500 managed to recover one of the three percent it lost on Wednesday, 18 December 2024. The index closed at 5,930.87, down two percent from where it ended the preceding week.

After the Fed reduced the Federal Funds Rate by a quarter point to a target range of 4.25-4.50% and signaled they weren’t planning more than two rate cuts in 2025, the CME Group’s FedWatch Tool dropped all but one rate cut from its forecast for all of 2025. The remaining projected rate cut is a 0.25% reduction in the Federal Funds Rate on 7 May (2025-Q2).

Not uncoincidentally, that’s the future quarter upon which investors are focusing their attention. The latest update shows the late week rebound in stock prices that falls within the range associated with 2025-Q2 that the dividend futures-based model has been projecting for the index.

Here is the full trading week’s worth of market moving headlines:

Monday, 16 December 2024

• Signs and portents for the U.S. economy:

• Oil prices drop on soft Chinese spending data
• US factory activity slumps further in December as tariffs loom

• US manufacturers predict growth in 2025 after prolonged slump

Fed minions get some better economic data:

• Fed sees a glimmer that recent US productivity gains may last

Mixed economic signs developing in China:

• China’s weak consumption drags on economy as Trump tariff threat looms

• China’s consumption recovery continues despite growth slows, stats bureau says

China November industrial output rises 5.4%, above expectations

China sees slowest home price decline in 17 months amid signs of stabilisation

China’s property investment falls 10.4% y/y in Jan-Nov

Bigger trouble developing in Japan, some hope on horizon:

• Japan’s factory activity softens for 6th straight month, PMI shows
• Japan October machinery orders rise on strong manufacturing sector

Bigger trouble developing in Eurozone less bad, Germany is worse:

• Decline in euro zone business activity eases in December, PMI shows

• German business activity ends year in contraction territory, PMI shows

ECB minions thinking they should probably keep cutting Eurozone interest rates:

• ECB should keep cutting rates in small steps, Kazimir says
• ECB expects more rate cuts as inflation fears abate

Nasdaq logs record close, S&P up as Wall Street looks for final 2024 rate cut; Dow down

• Bitcoin rallies past $107,000, hopes grow for strategic reserve

• Explainer: How would a U.S. bitcoin strategic reserve work?

US bond investors brace for ‘hawkish cut,’ spurn long-term bonds

Tuesday, 17 December 2024

• Signs and portents for the U.S. economy:

• Oil prices in holding pattern ahead of Federal Reserve decision
• Half US at high risk of power shortfall in next decade, regulator says
• US manufacturing output rebounds less than expected in November
• Fed caution, inflation risks propel US Treasury yield forecasts higher again

Bigger trouble, stimulus developing in China:

• China capital markets witness record outflows in Nov, official data shows
• Exclusive: China plans record budget deficit of 4% of GDP in 2025, say sources

BOJ minions expected to boldly do nothing with Japan’s interest rates:

• Over 90% of market players expect BOJ to keep rates steady this week, survey shows

ECB minion say they’ll make Eurozone monetary policy up as they go:

• ECB’s Rehn says speed, scale of rate cuts to be decided at each meeting

S&P, Nasdaq fall, Dow marks longest losing run since 1978 before Fed’s last 2024 meeting

• Stocks fall, Dow drops for 9th straight session with Fed decision due

Wednesday, 18 December 2024

• Signs and portents for the U.S. economy:

• US single-family housing starts rebound; tariffs an obstacle
• US current account deficit hits record high in the third quarter
• Oil settles up after US crude stocks fall, Fed’s 2025 outlook curbs gains

Fed minions cut rates, dial back plans for more rate cuts because of persistent Bidenflation:

• Fed lowers rates but sees fewer cuts next year due to stubbornly high inflation

• Fed lowers rates but projects slower pace of further cuts, firmer inflation
• Fed cuts reverse repo rate by wider margin than funds rate target

Fed policymakers project two quarter-point rate cuts next year

• US rate futures price in Fed on hold in January, less than two cuts in 2025
• VIEW Fed cuts rates 25 bp, scales back 2025 easing projections

BOJ minions seek answers to philosophical questions:

• BOJ’s rate hike debate shifts from ‘when?’ to ‘how high?’

Nasdaq slides more than 2%, yields jump as Fed sees fewer rate cuts, stresses caution

• Stocks decline after Fed cuts rates as expected
• US10Y hits 4.50%, US2Y spikes 10 bps after Fed projects fewer rate cuts in 2025

Thursday, 19 December 2024

• Signs and portents for the U.S. economy:

• Oil drops as dour economic outlook adds to oversupply concerns
• Philly Fed’s manufacturing gauge slumps to 20-month low
• US existing home sales jump to eight-month high in November
• US mortgage rates rise after three straight weekly declines
• Seeing low-income consumers squeezed, retailers target $10 and under gifts

Fed minions causing problems elsewhere in the world:

• Fed’s hawkish tilt has emerging markets scurrying to save currencies
• More hawkish Fed policy committee may increase dissent in 2025

Central banks taking other actions, or not, with their interest rates:

• Bank of England keeps rates steady, policy split widens
• BOJ keeps ultra-low rates, gives few clues on when it might hike

• BOJ Governor Ueda’s comments at news conference
• BOJ keeps rates steady by 8-1 vote, board member Tamura dissents

New Zealand sinks into recession, more rate cuts coming

ECB minions claim they don’t need to stimulate Eurozone economy:

• No need for ECB to start stimulating growth, Patsalides says

Wall Street rebound fizzles out, but Dow snaps longest losing streak since 1974

Friday, 20 December 2024

• Signs and portents for the U.S. economy:

• Fed’s Favored Inflation Gauge Brings Some Good News
• Bird flu drives US egg prices to all-time highs before Christmas
• Oil falls 1% on demand growth concerns, robust dollar

Fed minions try to explain why they’ve gone cold toward rate cuts in 2025:

• Fed policymakers prepare the ground for rate-cut pause next year

• Fed’s Williams says Fed remains on track for cuts, amid uncertain outlook
• Fed’s Goolsbee says policy uncertainty led to his shift on rate-cut path
• Fed’s Hammack says economic strength argued against rate cut

BOJ minions sad they can’t keep never-ending stimulus alive:

• Bank of Japan bids final farewell to Kuroda’s radical policy experiment
• Japan’s core inflation accelerates, keeps BOJ rate-hike chance alive

Stocks rally after inflation data but close lower for the week

• Soft inflation data helps Wall Street end an otherwise tough week on a positive note

The Atlanta Fed’s GDPNow tool‘s projection of the real GDP growth rate for the current quarter of 2024-Q3 declined to +3.1% from the previous week’s +3.3% annualized growth estimate.

Looking ahead, the next weeks should be relatively quiet in terms of market moving news for the markets, which will hopefully provide the conditions needed to deliver a traditional Santa Claus rally. We’ll pick up the plot in the new year with the first 2025 edition of the S&P 500 chaos series on Monday, 6 January 2025.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Federal Reserve official dressed as the Grinch who is trying to steal Christmas”