US stocks fell on Wednesday amid doubts about the US monetary policy outlook. The FOMC minutes from the latest meeting did not offer clear guidance on when to expect rate cuts, leaving investors in limbo. The S&P 500, Dow, and Nasdaq 100 all suffered losses, with tech stocks bearing the brunt. The market reaction to the FOMC minutes was also influenced by a range of economic data, such as job quits, ISM Manufacturing PMI, and job openings.
The S&P 500 lost 0.8%, while the Dow shed 284 points. The Nasdaq 100, which had its worst day since October, dropped 1.2%. Tech stocks, such as Tesla, Broadcom, and Nvidia, were the main drag, posting a four-day slide, the longest in more than two months. On the other hand, energy shares performed well, boosted by higher oil prices. Chevron and Exxon Mobil gained 1.9% and 0.8%, respectively.
The data front showed a mixed picture. The ISM Manufacturing PMI for December improved slightly to 47.4 from 46.7 in November. But still signaled the 14th straight month of contraction in factory activity. Production picked up, but new orders, employment, and inventories kept shrinking. Price pressures eased, but the Supplier Deliveries Index increased, indicating possible positive signs for future economic activity.
Job Market Trends
The number of job quits in the US fell to 3.471 million in November, hitting the lowest level since February 2021. The quits rate dipped to 2.2%, the lowest since September 2020. Job openings declined to 8.79 million in November, the lowest since March 2021, showing the continued softening of labor market conditions. Regional differences were seen, with job openings dropping in the South, Northeast, and West, while rising in the Midwest.
Federal Reserve’s Perspective: FOMC minutes
The FOMC minutes showed that Fed policymakers thought the policy rate was close to its peak for the current tightening cycle. However, the actual policy path depends on economic developments. Most participants expected a lower target range for the federal funds rate by the end of 2024. Suggesting a possible shift in monetary policy. The Fed kept the fed funds rate unchanged at 5.25%-5.5% in December but hinted at possible 75 basis points cuts in 2024.
Gold prices fell 1% to $2040 an ounce, affected by a stronger dollar and uncertainty about interest rate cuts. WTI crude futures rose 3% to $72.5 per barrel due to signs of supply disruption in Libya. Geopolitical tensions, including those in the Middle East, affected oil prices.
The dollar index climbed above the 102.5 mark as investors analyzed recent economic data. The JOLTs report and ISM PMI survey raised concerns about the impact on future monetary policy. Creating a sense of caution among investors.
The US stock market faced challenges as investors dealt with a complex combination of factors, including FOMC minutes, economic data, and global uncertainties. While the minutes gave limited clarity on future rate cuts, economic indicators showed a mixed picture of the job market and manufacturing sector.
The upcoming release of the Federal Reserve policy meeting minutes is important, with markets looking for clues into the central bank’s stance. Amidst these uncertainties, the market is revising its expectations, with a lower probability of a quarter-point rate cut in March, reflecting the dynamic nature of the current economic landscape.