Market Update: Stocks Tumble as Rate Cut Hopes Fade
The stock market experienced a significant decline on Thursday, with the S&P 500 ending down 1.6%, the Nasdaq Composite closing lower by 2.3%, and the Russell 2000 dropping 2.9%. The Dow Jones Industrial Average also fell by 797 points after hitting a record high on Wednesday. This downturn is largely attributed to the decreasing likelihood of a December rate cut by the Federal Reserve.
The Impact on the Tech Sector
The tech sector was one of the worst affected, with shares of Dell Technologies falling 4.8%, Nvidia tumbling 3.8%, and Palantir sliding 6.5%. Despite this recent decline, the Dow, S&P, and Nasdaq are still up double-digit percentage points for the year, while the Russell, which tracks smaller companies, has increased nearly 7% in 2025.
Federal Reserve’s Stance on Rate Cuts
Traders are currently betting on a less than 50% chance of a rate cut at the Fed’s next meeting, down from more than 90% just two weeks ago. This shift in expectations follows Federal Reserve Chair Jerome Powell’s surprise statement on October 29, suggesting that "a further reduction in the policy rate at the December meeting is not a foregone conclusion." Powell’s comments have introduced uncertainty into the market, making investors cautious about future rate cuts.
Divided Fed Officials
In recent days, Fed officials have expressed mixed opinions regarding interest in another rate reduction. Some, like Fed governors Lisa Cook and Philip Jefferson, as well as regional presidents Alberto Musalem and Austan Goolsbee, have sounded a cautious tone, indicating they may be more inclined to vote for a pause in rate cuts. Others, such as Fed governors Michelle Bowman and Christopher Waller, continue to support another cut. The division among Fed officials is contributing to the market’s uncertainty.
Lack of Official Government Data
The lack of official government data due to the shutdown is also clouding the picture. The two most recent jobs reports and the most recent inflation data have not been issued, making it difficult for the Fed to make informed decisions. Powell likened the lack of fresh data to descending fog, saying, "What do you do if you’re driving in the fog? You slow down." The White House has announced that September’s jobs report will be issued after the government reopened, but it is possible that October’s report may not be released.
Conclusion
The stock market’s decline on Thursday reflects the decreasing likelihood of a December rate cut and the uncertainty introduced by the divided Fed officials and the lack of government data. As the market continues to navigate these challenges, investors will be closely watching the Fed’s next move and any new developments in the government’s data releases. The current situation highlights the complex interplay between economic indicators, government policies, and market performance, making it essential for investors to stay informed and adapt to changing circumstances.
