MANHATTAN (CN) — Equity markets had seen nine straight days of losses when the latest comments by the Federal Reserve accelerated those losses into a full-on rout.
Markets weren’t shocked by the latest 0.25% interest rate cut by the Federal Reserve on Wednesday, but they were dismayed by the central bank’s reduction in the number of expected cuts next year from four to only two. After the news, the Dow Jones Industrial Average sloughed off more than 1,000 points.
Fortunately, the latest inflation data released Friday by the Bureau of Economic Analysis came to the rescue. The personal consumption expenditure price index came in at a 0.1% increase for November, with services inflation slowing and lower than forecast.
The data helped markets reclaim some of the losses, and by the closing bell the Dow declined 987 points for the week, while the S&P 500 dropped 120 points and the Nasdaq fell 354 points.
“It’s been an impressive year in the stock market, and the past few days’ weakness notwithstanding, there is a lot to be constructive about,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, said in a statement.
Multiple factors remain in flux for next year that have volatility increasing, Zaccarelli said, including another round of tax cuts, potential deregulation and draconian tariff policies. “The only thing we can be certain of is that there will be even more uncertainty in early 2025,” he said.
Wall Street analysts are not changing their tune about the potential for a recession in 2025. Nor is the Fed.
“The U.S. economy is just performing very, very well. Substantially better than our global peer group,” Fed Chair Jerome Powell told journalists after the Fed meeting. “And there’s no reason to think a downturn is any more likely than it usually is.”
Earlier in the week, the U.S. Census Bureau stated that retail sales for November rose by 0.7%, higher than forecast and a signal that consumer spending remained solid heading into the holiday season. September’s numbers also were revised slightly higher.
The largest standout among sales was in online purchases, experts say, which saw a 1.8% increase. However, taking out auto sales and gas station purchases, retail increased by just 0.2%.
Other data bear out the theory the U.S. economy remains on solid footing. Earlier in the week, the BEA issued its second revised estimate of gross domestic product in the third quarter, which came in at 3.1%, higher than the 2.8% originally reported.
Sentiment also has improved. The monthly survey by the University of Michigan showed a slight uptick, from 71.8 in November to 74 this month. More impressively, however, the university’s “current conditions” index rocketed up from 63.9 last month to 75.1 this month.
“Broadly speaking, while consumers still do not feel that they are thriving, they view the economy much more favorably than they did two years ago when inflation was at a peak,” Joanne Hsu, the survey’s chief economist, said in a statement.
While inflation remains a major concern for consumers — with tariff hikes also a growing concern — “consumers expect gas prices to remain relatively low, which would be a welcome development heading into the holiday travel season,” Hsu said.