Nasdaq Index, Dow Jones, S&P 500 News: Fed Uncertainty Fuels Bearish Outlook

Key Points

• Stock market, including Nasdaq and S&P 500, experienced declines.
• Rising U.S. Treasury yields cast doubt on the Federal Reserve’s commitment to rate cuts.
• Prominent analysts express concerns, while CME Group’s FedWatch predicts a rate cut in March.
• Fed Minutes could set the tone into close. 

Stock Market Declines

Both the Nasdaq Composite and S&P 500 witnessed declines, sending shockwaves through major tech giants like Apple and Nvidia, which retreated. Investor confidence dwindled amid uncertainties surrounding the Federal Reserve’s rate cut timeline.

US Treasury Yields and Federal Reserve Outlook

Investors observed an increase in U.S. Treasury yields, reflecting doubts about the Federal Reserve’s commitment to aggressive rate cuts. The 10-year Treasury yield showed an uptick, breaking its downward trend since late 2023.

The imminent release of December’s Federal Reserve meeting minutes is highly anticipated, as it is poised to offer insights into interest rates and economic expectations.

Market Analyst Perspectives

Prominent market experts weighed in on the situation. Steve Eisman of Neuberger Berman expressed concerns about market over-optimism. In contrast, HSBC advised caution, recommending a reduction in risk asset exposure, foreseeing what they term a “Reverse Goldilocks” scenario. ValueAct Capital lent its support to Disney’s board amidst challenges from activist investors.

Economic Data and Reports

Investors closely monitor upcoming economic data, including ADP’s private payrolls report and nonfarm payroll data. Notably, U.S. job openings fell for the third consecutive month in November, signaling a gradual easing of labor market conditions.

According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), job openings declined by 62,000 to 8.790 million at the end of November. October’s data was slightly revised upward to 8.852 million job openings. These figures are a departure from the record high of 12.0 million in March 2022. Reports like these provide vital insights into labor market trends and the potential direction of Fed policy. CME Group’s FedWatch tool currently indicates a high probability of a rate cut in March.

Short-Term Forecast: Bearish

The recent stock market declines, coupled with uncertainties surrounding the Federal Reserve’s actions, point to a short-term bearish outlook. Investors should exercise caution and consider risk mitigation strategies as market volatility is expected to persist. The uptick in U.S. Treasury yields may further contribute to this bearish sentiment.

Technical Analysis

The E-mini Nasdaq-100 Index, currently coming off its all-time high, displays notable downward momentum. This indicates a potential short-term descent towards minor support levels, with a subsequent approach to the crucial 50-day moving average.

The key determinant of the long-term outlook remains the 200-day moving average, which, if maintained, supports a bullish perspective. However, it’s important to note that the short-term trend may shift lower should the 50-day moving average falter.

In light of these factors, the current market sentiment leans cautiously bullish for the long term while keeping a watchful eye on potential short-term weakness.