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Federal Reserve Chair Jerome Powell adopted a hawkish stance during his Wednesday press conference after the December Fed meeting, sparking a market bloodbath as the New York session headed to the close.
Although the Federal Reserve lowered interest rates by 0.25% to a range of 4.25%-4.5%, as widely anticipated, the updated economic projections suggest just two potential rate cuts in 2025 — down from four projected in September and fewer than the three anticipated by markets before the meeting.
Powell described the shift as “a new phase” for monetary policy, emphasizing that after 100 basis points of rate cuts in 2024, rates are now significantly closer to a neutral stance.
Stocks tumbled across the board, the U.S. dollar soared to two-year highs and Bitcoin (CRYPTO: BTC) cratered over 5%, as investors digested the reality of a shift in the monetary policy stance by the Federal Reserve.
The CBOE Volatility Index, known as the VIX and Wall Street’s fear gauge, skyrocketed 58% to 25, reflecting a spike in investor uncertainty and heightened anxiety over the future of interest rates.
Wall Street Wipeout: Major Indices Slammed
The Dow Jones Industrial Average, as tracked by the SPDR Dow Jones Industrial Average ETF (NYSE:DIA), dropped 1,123 points, falling 2.6% to close at 42,326, marking its worst one-day drop since September 2022. Amazon.com Inc. (NASDAQ:AMZN) recorded the worst performance among blue-chip stocks, down 4.6%.
The S&P 500 index — tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) — fell 178 points, down 2.9% to 5,872, also marking its worst day since September 2022. Paycom Software Inc. (NYSE:PAYC) was the major laggard within the S&P 500, down 10%.
The tech-heavy Nasdaq 100, tracked by the Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), experienced an even sharper drop of 3.6%, closing at 21,209 as interest rate-sensitive technology stocks took a beating. Tesla Inc. (NASDAQ:TSLA) tumbled 8.1%, marking the worst performance within the Nasdaq 100.
Every Magnificent Seven company ended the day in the red, collectively erasing more than $600 billion in market value on Wednesday.
Small caps in the Russell 2000 posted the steepest losses, plummeting 4.7% to 2,225. With Wednesday’s move, the iShares Russell 2000 ETF (NASDAQ:IWM) has fully erased the post-election rally.
All major U.S. equity sectors finished in the red.
Consumer Discretionary stocks suffered the most, plunging 4.5%, followed by Real Estate, which dropped 4% as rising rates weigh heavily on growth-oriented and interest-rate-sensitive industries.