The stock market rally hit a speed bump on Wednesday as U.S. stocks experienced a downturn, interrupting a record-setting surge that had been ongoing for the past week. The Dow Jones Industrial Average (^DJI) saw a decline of over 1.2%, while the Nasdaq Composite (^IXIC) and S&P 500 (^GSPC) both retreated approximately 1.5%. This downward movement marked the S&P’s weakest single-day performance since October, putting an end to the nine-day winning streak for both the Nasdaq and Dow Jones.
Despite a robust year-end rally, Tuesday’s session concluded with the Dow achieving its fifth consecutive record close and bringing the S&P 500 closer to its all-time high established in January 2022. Investors had been resilient in the face of hawkish remarks from Federal Reserve officials, who aimed to manage expectations regarding a swift reduction in benchmark rates.
Wednesday’s market sentiment was influenced by a surprise decline in UK inflation, reaching its lowest level in two years. This development fueled optimism that price pressures are alleviating in major economies, complemented by a decrease in German wholesale inflation. Bond yields continued their decline this month, with the 10-year Treasury yield (^TNX) falling below 3.9%.
However, concerns are emerging about the potential repercussions of faster, earlier rate cuts, raising questions about whether the U.S. economy might be pushed into a downturn. Investors will closely monitor upcoming data, particularly Thursday’s GDP update and Friday’s reading on PCE inflation, the Fed’s preferred gauge, for insights into whether the Fed can achieve a “soft landing.”
In the corporate sphere, FedEx (FDX) faced a significant setback as its shares plummeted more than 10%. The delivery company missed quarterly profit expectations and adjusted its full-year revenue forecast due to decreased demand from the U.S. Postal Service.
