Shares dive as Fed projects slower rate cuts next year

General market commentary

US equities tumbled on Wednesday as the Federal Reserve reduced interest rates by 25 basis points to a target range of 4.25%-4.5%, but signalled fewer cuts than previously expected, triggering a broad market sell-off. The Nasdaq Composite and S&P 500 dropped 3.7% and 2.9%, respectively, while the Dow Jones shed 1,123 points, marking its 10th consecutive day of losses, the longest streak since 1974. Treasury yields surged, with the 10-year yield hitting 4.51%, as the Fed’s updated projections indicated just two rate cuts in 2025, down from four, alongside lower unemployment forecasts and higher expectations for core inflation and economic growth. All sectors ended in the red, led by consumer discretionary, which plunged 4.7%.

The Fed’s cautious stance, highlighted by Chair Jerome Powell’s remarks that monetary policy is now less restrictive, dampened investor sentiment further. Equity markets faced additional pressure as surging bond yields weighed on valuations. Semiconductor and healthcare shares, which initially showed gains, erased their momentum, with Nvidia slipping 1.1% and UnitedHealth recovering 2.9% after its recent steep decline. The more hawkish tone in the Fed’s projections has heightened concerns over tighter financial conditions and their impact on economic growth moving forward.

Latest market update

• Asian equities fell sharply on Thursday, led by declines in technology shares, as markets reacted to the Federal Reserve’s projection of a slower pace of interest rate cuts in 2025. South Korea’s KOSPI dropped 1.7%, weighed down by chipmakers like SK Hynix and Samsung, while Japan’s Nikkei 225 and TOPIX trimmed earlier losses after the Bank of Japan held rates steady, supporting export-oriented sectors amid a weaker yen.

• US equity futures stabilised on Thursday following Wednesday’s sharp selloff, as markets digested the Federal Reserve's revised outlook for fewer interest rate cuts in 2025, which had triggered a steep decline in major indices and sent Treasury yields higher.

• European equities edged higher on Wednesday, with the Eurozone’s Stoxx 50 rising 0.3% to 4,960, as investors awaited the Federal Reserve’s rate decision. ASML gained 2.2% amid chip sector volatility, while UniCredit rose over 2% on increasing its Commerzbank stake, and Renault surged 5.6% on reports of a potential Nissan-Honda merger.

• The US dollar held firm near its highest level since November 2022, bolstered by the Federal Reserve’s cautious stance on future rate cuts and stronger economic projections. Meanwhile, the euro weakened against the dollar, trading at 1.0377 amid diverging monetary policy expectations.

• Bitcoin fell below the $100,000 mark on Thursday, retreating from its recent all-time highs after the US Federal Reserve signalled fewer rate cuts in 2025. The decline was also influenced by Fed Chair Jerome Powell’s comments, clarifying that the central bank cannot hold digital currencies under current regulations.

• Oil prices fell in Asian trade on Thursday this morning, pressured by a stronger dollar following the Federal Reserve’s hawkish outlook for fewer rate cuts in 2025, which heightened fears of slower global economic growth. However, crude remained supported this week by hopes of increased fiscal stimulus in China and tighter supplies from extended OPEC+ production cuts.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

• Micron Technology’s shares tumbled 16% in after-hours trading on Wednesday after the company forecasted lower-than-expected revenue and profits due to weak demand for consumer products. The chipmaker’s outlook was further dampened by concerns over sluggish demand in key markets such as PCs, smartphones, and autos.

• UniCredit has increased its stake in Commerzbank to 28%, nearing the 30% threshold that would trigger a mandatory takeover bid under German law. The move reflects UniCredit's interest in a potential merger to expand its presence in Germany, despite political resistance and delays.

• Pressure is mounting on Amazon to negotiate with the Teamsters union as workers at multiple US facilities vote to authorise a strike, potentially disrupting the retailer’s holiday operations. Despite the union's threats of a walkout, Amazon has resisted bargaining, fearing it could fuel further unionisation efforts.

• The European Medicines Agency is reviewing studies linking Novo Nordisk's diabetes drug Ozempic to a rare eye condition causing vision loss, though no direct cause has been confirmed. Novo Nordisk maintains that the benefit-risk profile of semaglutide, also used in Wegovy, remains unchanged.

• Siemens plans to sell a $2.6 billion stake in Siemens Energy to help fund its $10 billion acquisition of Altair Engineering. The company also aims to eventually divest its entire holding in Siemens Energy and is considering selling a portion of its stake in Siemens Healthineers.

• Morgan Stanley has named Visa its top pick in the payments sector for 2025, citing strong growth prospects from international travel, value-added services, and easing regulatory risks. The brokerage highlighted Visa's attractive valuation, potential for double-digit earnings growth, and reduced investor concerns over ownership levels.

• Baird cut Rivian's price target to $16, citing limited catalysts for 2025, weaker EV demand, and concerns over near-term growth following missed Q3 results and a lowered production outlook. While positive on Rivian's brand and long-term prospects, the brokerage expects sluggish EV sales to weigh on shares, contrasting with its increased price target for Tesla.

Upcoming data and events

Today in the US we will see the release of the third estimate for Q3 GDP, November existing home sales, and November leading indicators. Additionally, key corporate earnings are expected from the likes of FedEx and Nike, while the Bank of England holds its latest monetary policy meeting.

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