Interest Rate Cut Adjustment Causes 'Collapse'... Dow Experiences Longest Decline in 50 Years [New York Stock Market Briefing]

Major indices in the New York stock market fell sharply. The Dow Jones Industrial Average recorded its longest decline in 50 years, falling for 10 consecutive trading days. This came after the Federal Reserve (Fed) announced at the Federal Open Market Committee (FOMC) regular meeting that it would slow down the pace of interest rate cuts next year.

On the 18th (local time) at the New York Stock Exchange (NYSE), the blue-chip Dow Jones Industrial Average fell 1,123.03 points (2.58%) to 42,326.87, the large-cap benchmark Standard & Poor's (S&P) 500 index dropped 178.45 points (2.95%) to 5,872.16, and the Nasdaq Composite fell 716.37 points (3.56%) to 19,392.69. The Russell 2000 index, composed of small and mid-cap stocks, plunged 4.36%.

The Dow index has fallen for 10 consecutive trading days since the 5th. This is the longest consecutive decline in 50 years since the 11 consecutive days of decline in October 1974.

This is due to the results of the Fed's December FOMC regular meeting. Two hours before the market closed, the decision to cut the base rate by 0.25% points was announced, but the 'dot plot' containing the future interest rate outlook of Fed officials predicted that the rate cut next year would be only 0.5% points. This is a retreat from the previous forecast of a 1% point cut.

Fed Chairman Jerome Powell said, "As inflation expectations rise again, the median interest rate outlook has also increased somewhat," adding, "If inflation strengthens further, we may slow down the pace of rate cuts even more."

He stated, "The Fed's monetary policy stance is now considerably less restrictive," and "Due to the rate cuts over the past three months, we can make more cautious monetary policy decisions in the future."

With the announcement of these FOMC results, the three major indices, which had been on an upward trend, turned downward.

All stocks in the large tech group 'Magnificent 7' (M7) fell. In particular, Tesla, which was expected to grow rapidly under the Trump administration and had been on an upward trend, fell by 8.28%.

Amazon fell 4.6%, Apple dropped 2.14%, and Microsoft, Alphabet (Google's parent company), and Meta (Facebook's parent company) each fell more than 3%.

NVIDIA also fell 1.14%, dropping below $130.

Broadcom, which has emerged as a 'NVIDIA rival' and whose stock price has soared, fell 6.91% as profit-taking sales emerged, following the previous day. However, it maintained a market capitalization of $1 trillion.

By sector, all 11 sectors that make up the S&P 500 fell more than 1%, with consumer discretionary (4.74%↓), real estate (3.97%↓), communication services (3.16%↓), and financials (3.03%↓) showing significant declines.

According to the FedWatch tool of the CME Group, the probability of the Fed cutting rates by an additional 25bp in January next year is reflected at 8.6%, and the probability of holding rates steady is 91.4%.

The volatility index (VIX), compiled by the Cboe, showed a sharp increase of 11.75 points (74.04%) to 27.62 compared to the previous session.

Reporter Han Kyung-woo, Hankyung.com, case@hankyung.com