Nasdaq and US Stocks: Fed’s Rate Revisions Signal New Challenges for Investors

What’s Driving the Market Today?

Stock futures rebounded Thursday morning following a sharp selloff triggered by the Federal Reserve’s revised rate outlook. The Fed’s decision to scale back expected rate cuts next year sent shockwaves across major indexes on Wednesday, with the Dow Jones Industrial Average plunging over 1,100 points for its longest losing streak in nearly five decades.

As traders digest mixed signals from the economy—including strong labor data but weak manufacturing reports—focus is shifting toward the potential impact on sectors and individual stocks. Treasury yields, corporate guidance, and revised economic projections are also shaping the trading environment.

How Did Major Indexes Perform?

The Dow dropped 1,123 points, or 2.58%, to close at 42,326.87, marking its worst single-day loss since August and its 10th consecutive decline. The S&P 500 fell 2.95%, while the tech-heavy Nasdaq Composite lost 3.56%. Both indices recorded their largest declines since August as rising Treasury yields and pessimism about future rate cuts dampened investor sentiment.

Tech stocks bore the brunt of the selloff, with mega-cap names like Nvidia pulling back sharply. The S&P 500’s and Nasdaq’s losses reflected the significant pressure on high-valuation sectors from a spike in bond yields.

Which Sectors and Stocks Are Moving?

Treasury yields jumped following the Fed’s announcement, with the 10-year yield rising 13 basis points to exceed 4.50%. This put additional strain on interest-rate-sensitive sectors like technology and real estate.

In individual stock moves, Micron Technology tumbled 14% in early Thursday trading after issuing disappointing second-quarter guidance, despite an earnings beat. Lamb Weston shares sank 18% after falling short of expectations for both revenue and earnings, while Darden Restaurants rose 8%, buoyed by an earnings beat and raised full-year guidance.

The financial sector saw modest gains, supported by rising interest rates, while consumer discretionary stocks like Darden provided a bright spot in an otherwise subdued market.

What Does Economic Data Reveal?

Economic data released Thursday offered a mixed picture. Weekly jobless claims fell to 220,000, lower than the 230,000 projected by analysts, reflecting continued strength in the labor market. However, the four-week moving average ticked up slightly to 225,500, indicating some volatility.

Manufacturing data painted a bleaker outlook. The Philadelphia Fed’s business outlook survey showed activity contracting at its sharpest rate since April 2023, with new orders and shipments declining significantly. This weakness in manufacturing signals ongoing challenges for industrials and related sectors.

On the other hand, GDP growth in Q3 2024 was revised higher to 3.1%, driven by consumer spending and government expenditures. Inflation metrics, including core PCE inflation at 2.2%, aligned closely with the Federal Reserve’s targets, easing concerns about runaway inflation.

Market Forecast: Where Could the Market Be Headed Next?

The market outlook is cautious as traders evaluate the implications of a slower pace of rate cuts. Rising Treasury yields, corporate profit pressures, and weak manufacturing data suggest equities may face further headwinds in the near term.

However, strong labor market data and steady GDP growth could provide some support, especially for sectors tied to consumer spending. Traders should remain vigilant for additional earnings reports and macroeconomic data to navigate potential volatility as the year-end approaches.

More Information in our Economic Calendar.