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NEWS
Slow Bleed Turns Into A Gusher

The slow and steady decline most stocks have been experiencing throughout December accelerated into a full-blown selloff after the Fed reduced its rate cut outlook amid rising inflation risks. The S&P 500 had its worst one-day decline since March 2020, as investors fear the Santa Claus rally will fail the bulls for the second year in a row. 👀

Today's issue covers what the Fed just happened, Micron earnings missing the mark, Hindenburg’s latest short target, and more from the day. 📰

Here’s the S&P 500 heatmap. 0 of 11 sectors closed green, with healthcare (-1.36%) leading and consumer discretionary (-4.51%) lagging.

And here are the closing prices: 

Most bullish/bearish symbols on Stocktwits at the close: 📈 $AEMD, $CURR, $QMCO, $GPCR, $WIMI 📉 $NVNI, $SEZL, $CARA, $VRTX, $XELA*

*If you’re a business and want to access this data via our API, email us.

POLICY
What The Fed Just Happened? 😨 

Today’s Fed meeting was expected to be a major catalyst for the market, but investors weren’t sure whether it’d be bullish or bearish. Although the bulls had been in solid control most of the year, this specific event didn’t swing in their favor.

The Federal Reserve cut rates by another 25 basis points, as expected. However, the pre-prepared statement hinted at a slower pace of cuts by adding the phrase “the extent and timing” to modify potential adjustments. And the updated economic outlook is what ultimately sent the market into a tailspin. 📉 

In the projections, members raised their inflation and GDP expectations for 2024 and 2025, reflecting resilient economic growth. As a result, their forecast is now for two rate cuts during 2025 (down from four) and another two in 2026. Higher rates are here to stay as long as the economy holds up and inflation remains sticky.

Speaking of sticky inflation, the committee sees more uncertainty about the path of inflation and now sees the risks “weighted to the upside" vs. broadly balanced in September. This is what drove their decision to significantly lower rate cut expectations and ultimately spooked the market. ⚠️ 

The market selling off because the economy is stronger than expected is an interesting paradox. But with stocks trading sharply higher this year, part of the thesis for paying higher valuations was that interest rates were set to fall more significantly. 🤔 

The fiscal side of government didn’t help things either, with President-elect Donald Trump opposing a bipartisan government funding bill that would have kept the government open until March 14th. A shutdown will occur this Saturday at 12:01 am ET without any action from Congress, and there’s currently no fallback plan.

Between “Fart Coin” approaching a $1 billion value and people taking side bets on just about everything (including Jerome Powell saying “good afternoon” during his press conference. Spoiler alert, he did.), there was clearly a lot of hot air in this market. 🥵 

We’ve been talking about it for a while, saying that bears lacked a clear catalyst to take control of the market. And today, Jerome Powell and the Fed delivered it.

With many stocks already down for most of the month, some traders and investors are looking for short-term signs of a “washout” before stepping in to buy the dip. The current poll on Stocktwits suggests the community is split 50/50 on whether there’s still potential for a Santa Rally. Time will tell. 🤷 

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