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Date: 19th December 2024.


Federal Reserve Sparks NASDAQ’s Sharpest Selloff of 2024!


The NASDAQ fell more than 3.60% after the Federal Reserve cut interest rates, but gave hawkish comments. The stock market saw its largest decline witnessed in 2024 so far, as investors opted to cash in profits and not risk in the short-medium term. What did Chairman Powell reveal, and how does it impact the NASDAQ?


The NASDAQ Falls To December Lows After Fed Guidance!


The NASDAQ and US stock market in general saw a considerable decline after the press conference of the Federal Reserve. The USA100 ended the day 3.60% lower and saw only 1 of its 100 stocks avoid a decline. Of the most influential stocks the worst performers were Tesla (-8.28%), Broadcom (-6.91%) and Amazon (-4.60%).


When monitoring the broader stock market, similar conditions are seen confirming the investor sentiment is significantly lower and not solely related to the tech industry. The worst performing sectors are the housing and banking sectors. However, investors should also note that the decline was partially due to a build-up of profits over the past months. As a result, investors could easily sell and reduce exposure to cash in profits and lower their risk appetite.


Analysts note that despite the Federal Reserve's hawkish stance, the Chairman provided a positive outlook. He highlighted optimism for the economy and the employment sector. Therefore, many analysts continue to believe that investors will buy the dip, even if it’s not imminent.


A Hawkish Federal Reserve And Powell’s Guidance


Even though traditional economics suggests a rate cut benefits the stock market, the market had already priced in the cut. As a result, the rate cut could no longer influence prices. Investors are now focusing on how the Federal Reserve plans to cut in 2025. This is what triggered the selloff and the decline.


Investors were looking for indications of 3-4 rate cuts by the Federal Reserve in 2025 and for the first cut to be in March. However, analysts advise that the forward guidance by the Chairman, Jerome Powell, clearly indicates 2 rate adjustments. In addition to this, analysts believe the Fed will now cut next in May 2025.


The average expectation now is that the Federal Reserve will cut 0.25% on two occasions in 2025. The Fed also advised that it is too early to know the effect of tariffs and “when the path is uncertain, you go slower”. This added to the hawkish tone of the central bank. However, surveys indicate that 15% of analysts believe the Federal Reserve will be forced into cutting rates at a faster pace.


As a result, the US Dollar Index rose 1.25% and Bond Yields to a 7-month high. For investors, this makes other investment categories more attractive and stocks more expensive for foreign investors. However, the average decline the NASDAQ has seen before investors buy the dip is 13% ($19,320). This will also be a key level for investors if the NASDAQ continues to decline.


NASDAQ - Technical Analysis


Due to the bearish volatility, the price of the NASDAQ is trading below all major Moving Averages and Oscillators on the 2-Hour chart. After retracement the oscillators are no longer indicating an oversold price and continue to point to a bearish bias. Sell indications are likely to strengthen if the price declines below $21,222.60 in the short-term.


Key Takeaways:


*A hawkish Federal Reserve cut interest rates by 0.25% and indicates only 2 rate cuts in 2025!
*The stock market witnesses its worst day of 2024 due to the Fed’s hawkish forward guidance. Economists do not expect a rate cut before May 2025.
*Housing and bank stocks fell more than 4%. Investors are cashing in their gains and not looking to risk while the Fed is unlikely to cut again until May 2025.
*The US Dollar Index rises close to its highest level since November 2022. US Bond Yields also rise to their highest since May 2024.
*The NASDAQ’s average decline in 2024 before investors opt to purchase the dip is 13%.


Always trade with strict risk management. Your capital is the single most important aspect of your trading business.


Please note that times displayed based on local time zone and are from time of writing this report.


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Michalis Efthymiou
HFMarkets

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