Andreja Stojanovic
Wednesday, December 18, proved a particularly bloody day for the stock market as approximately $1.5 trillion was wiped from it before the closing bell.
Prominent indices like the small-cap Russell 2,000 and the large-cap S&P 500 both effectively erased their post-election gains.
The S&P 500 fell to 5,872.16 points – right between the November 5 close at 5,782.76 and November 6 close at 5,929.04 – and Russell 2,000 to 2,231.51 – below both 2,260.84 on November 5 and 2,392.92 on November 6.
The cryptocurrency market didn’t fare much better – though it doubtlessly benefitted from never closing – as it, at one point, erased some $300 billion, but reduced the losses to about $100 billion. Bitcoin (BTC) likewise made a $7,000 swing, first falling from just under $105,000 to approximately $98,000 and then recovering to its press time price of $101,708.
Why the stock market is crashing
The entirety of the latest market tumult can be traced back to the Federal Open Market Committee (FOMC) meeting, which ended on Wednesday.
Still, the downturn could appear strange at face value, as the 25 basis points (BPS) cut the Fed announced has been widely expected, as reported by Finbold on December 4.
Indeed, as is usually the case, the devil is in the details. Specifically, despite providing the expected interest rate reduction, the Federal Reserve cautioned there would be fewer cuts than previously anticipated in 2025.
Similarly, it revised its inflation outlook upward, from 2.1% to 2.5%.
Some investors took the announcements as something of an admission that the Federal Reserve’s strategy has not been a resounding success, while others began fearing the return of rampant inflation.
The price-rise worries might be particularly pointed as, as it turned out, the feared recession over high interest rates never materialized, but inflation did begin reheating as soon as rate reductions became a reality.
Such a setup – provided the trend continues – could lead to particularly bad outcomes, the worst of which is the ‘most predictable forthcoming inflation crisis,’ outlined early in 2024 and forecasting double-digit inflation in the coming years.
Featured image via Shutterstock
