✂️ A small rate cut

and stocks go crashing

Good morning investors! We got the rate cut that we expected yet markets crashed with BTC falling below $100,000 and some big names losing over 5%.

Today we cover:

  • Fed cuts rate

  • Stocks crash

  • Micron beats yet crashes

📊 Economy and News 

Fed Cuts Rates to December 2022 Levels Amid Projected Limited Future Reductions

The Federal Open Market Committee (FOMC) reduced its overnight borrowing rate to a target range of 4.25%-4.5%, bringing it back to levels last seen in December 2022.

Chair Jerome Powell described the decision as a close call but ultimately the right one. The committee's "dot plot" projections suggest only two additional rate cuts in 2025, halving earlier intentions from September. Assuming quarter-point adjustments, the Fed anticipates two more reductions in 2026 and another in 2027.

Over the long term, the committee expects the “neutral” funds rate to settle at 3%, slightly higher than the September estimate. This year marks a shift in economic projections, with GDP growth for 2024 revised upward to 2.5%, though officials predict it will slow to the long-term rate of 1.8% in subsequent years. Meanwhile, unemployment is now expected to average 4.2%, and inflation estimates have been revised higher, with core inflation predicted to reach 2.8%.

Mixed Market Reaction and Policy Recalibration

Despite inflation remaining above the Fed's 2% target and the economy showing strength, Powell noted the cuts aim to recalibrate monetary policy under less restrictive conditions. However, the broader financial markets appear skeptical. Treasury yields and mortgage rates have climbed sharply, signaling doubts about the Fed's ability to lower rates further. The policy-sensitive 2-year Treasury yield rose to 4.3%, exceeding the upper end of the Fed’s target range.

Global hits:

Good to know: UK inflation rises to 2.6% in November, in line with expectations.

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📈 Stocks

S&P 500 5,872.16 (-2.95%)
DJIA 42,326.87 (-2.58%)
NASDAQ 19,392.69 (-3.56%)
BRENT CRUDE 73.08 (-0.42%)
* Prices as of Dec 19th, 12:20 AM UTC

DOW marked its longest losing streak since 1974 as stocks fall

The Dow Jones Industrial Average experienced a sharp decline on Wednesday following a disappointing outlook from the Federal Reserve. This extended the blue-chip index's losing streak to 10 consecutive sessions, the longest stretch since 1974 during Gerald Ford’s presidency. The last time the Dow faced a comparable slump was from September 20 to October 4, 1974, when it fell for 11 straight sessions.

Despite the prolonged slide, the Dow's losses remain relatively modest at less than 6%. In contrast, broader market indexes had been performing strongly until Wednesday's downturn, with many hovering near record highs before also retreating.

Factors Driving the Dow’s Decline

Investor sentiment shifted dramatically after Federal Reserve Chair Jerome Powell’s press conference. Prior to Wednesday, markets had priced in a 98% probability of a rate cut in January. However, Powell’s remarks slashed that expectation to just 6%, leading to widespread market disappointment.

UnitedHealth Group has been a significant drag on the Dow, with its stock plunging 15% this month. The decline began after the tragic shooting of UnitedHealthcare CEO Brian Thompson but ironically saw a +3.3% rebound on Wednesday. Nvidia, the chipmaker added to the Dow in November, has also contributed to the index’s decline. Although Nvidia’s stock is up over 180% this year, it has dropped around 5% in the past month.

Despite these challenges, the Dow remains resilient, showing a 14% gain in 2024, equivalent to more than 5,000 points. Earlier in the year, markets surged following the election results, buoyed by investor optimism over political stability and potential tax and regulatory reforms.

Micron crashes despite a beat: Micron shares dropped -13% in after-hours trading following weaker-than-expected guidance for the second quarter, despite narrowly surpassing earnings expectations for the latest period.

The chipmaker reported adjusted earnings per share of $1.79, slightly above the $1.75 analysts anticipated, with revenue matching expectations at $8.71 billion. However, for the second quarter, Micron projected revenue of $7.9 billion, plus or minus $200 million, and adjusted EPS of $1.43, falling short of analyst estimates of $8.98 billion in revenue and $1.91 EPS.

Year to date, Micron shares are up 22%, lagging behind the Nasdaq’s 29% gain.

Exciting: S&P Global, Edmunds and Cox Automotive expect new auto sales to increase year over year by 2.5% or less to achieve the industry’s best results since 2019. Elsewhere, Nissan shares notch best day in at least 40 years after reports on potential mega merger with Honda. Lastly, Stellantis further delays electric Ram pickup to prioritize plug-in ‘EREV’ model.

💵 Personal Finance

Record Low Cash Allocations Reflect Bullish Sentiment

A recent survey of global fund managers by Bank of America revealed the lowest cash allocation on record, signaling strong bullishness as equities near the end of a standout year. The average cash allocation fell to 14% underweight compared to stocks, the most significant underweight since the survey began in 2001.

This shift reflects optimism driven by expectations of Federal Reserve rate cuts and economic growth under President-elect Donald Trump, according to Bank of America strategist Michael Hartnett. The drop represents a sharp turnaround from November, when cash was 4% overweight, marking an 18-percentage-point swing in just one month.

Key Metrics and Market Implications
Cash levels among surveyed managers dropped to 3.9% from 4.3%, hitting their lowest point since mid-2021. Hartnett noted that dipping below the 4% threshold often signals a contrarian sell indicator, as concentrated stock positions leave little cash to drive further market gains.

Equities Poised for Further Growth
Wall Street remains optimistic about stocks heading into 2025, with strategists forecasting a 10% rise in the S&P 500 from current levels by the end of next year. However, with the index already up over 26% in 2024, actual growth could exceed expectations.

Here’s an interesting video on cash:

There are several ways to use your cash, including investing in dividend stocks. Check Dividend Download for more on dividend investing and top dividend paying companies.

💰 Be a Better Investor

“If you would be wealthy, think of saving as well as getting.”

Benjamin Franklin

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👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.