On Wednesday, Major stock indexes experienced a notable decline after initially rising, as traders absorbed the implications of the Federal Reserve's announcements and listened to Chair Jerome Powell's subsequent press conference. The U.S. central bank decided to lower interest rates by a quarter percentage point to a range of 4.25%-4.50%; however, Powell emphasized that any future cuts would depend on significant progress in combating persistently high inflation. His comments hinted that policymakers are starting to consider the potential for substantial economic changes under a new Trump administration. The Dow Jones dropped 1,123 points, the S&P 500 decreased by nearly 3%, and the Nasdaq composite fell over 3.5%. Treasury yields saw an increase, with the 10-year yield rising 10 basis points to 4.49%, and the two-year yield also climbing 10 basis points to 4.34%, reflecting the market's adjustment to the Fed's rate outlook.
The Fed and Powell were anticipated to announce a "hawkish" rate adjustment, predicting approximately half the rate easing for 2025 compared to the 100 basis points that had been estimated three months earlier. However, by the end of Powell's remarks, market expectations had shifted to only one 25-basis-point cut for the following year.
Powell described the decision as a "closer call," noting that the slower anticipated rate cuts next year were influenced by higher inflation forecasts for 2024. Thus, given the uncertain inflation outlook and the potential for slower rate cuts, investors may consider diversifying their portfolios to include assets that typically perform well during inflationary periods, such as commodities and inflation-protected securities. Additionally, investors will probably maintain a cautious approach to interest rate-sensitive investments.
In Asia trading hours, gold prices remained under pressure, hovering near one-month lows just above $2,600. The market reacted to the Fed's hawkish stance, which bolstered the U.S. dollar index. Despite this, gold is still viewed as an investment option heading into 2025 due to anticipate the more persistent inflation. Short-term support for gold is expected at $2,603.15, with resistance around $2,672.70.
Looking ahead, global oil and gas prices are projected to decline due to weakening energy demand, particularly from subdued consumption in China. However, potential military escalations in the Middle East or shifts in international sanctions could lead to increased price volatility. Currently, crude oil is trading below $70.00, with immediate support at $67.12, a level that proved resilient in May and June 2023. Should this level be broken, further support could emerge at $64.75 and $64.38, marking the low from earlier in 2023.
