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US stocks fell on Tuesday despite upbeat retail sales data as the Federal Reserve kicked off its two-day policy meeting expected to usher in an interest-rate cut.
The Dow Jones Industrial Average (^DJI) slid roughly 0.7%, coming off an eighth straight day of losses for the blue-chip index. The benchmark S&P 500 (^GSPC) dropped around 0.5%, while the Nasdaq Composite (^IXIC) also lost about 0.5% after the tech-heavy index closed at a record high on Monday.
Markets are waiting for Fed policymakers to kick off their final gathering of the year, amid almost total conviction that a 0.25% rate cut is coming on Wednesday. Some on Wall Street suspect it could be the last cut for some time, as inflation proves persistent. Given that, the focus is on clues to the path of rates next year — and in January, in particular.
In the meantime, investors assessed a November reading on retail sales for insight into the health of the consumer and the economy. Sales rose 0.7%, faster than the 0.6% month-on-month gain expected, amid strong holiday spending.
Eyes are also on Nvidia (NVDA), down more than 10% from its November record close. The chip giant’s shares fell over 2% in late morning trade.
Elsewhere, bitcoin (BTC-USD) prices extended their rally to briefly break above $108,000 a token.
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Market rally appears ‘vulnerable’ heading into 2025.
Nvidia (NVDA) stock continued to slide on Tuesday after shares fell more than 10% from a November record close. The chip giant’s stock dropped nearly 3% in early trade.
The moves echoed a decline across all three major indexes, which have taken a breather as investors debate what could happen to the US economy in 2025.
“This rally, which has been really dramatic since July, is starting to look a little bit vulnerable,” James Demmert, chief investment officer at Main Street Research, told Yahoo Finance’s Morning Brief.
“So going into 2025, I think investors should start to prepare themselves emotionally for a normal correction of 8% to 12% in markets,” he cautioned.
Demmert, who said the Federal Reserve “is probably already at the neutral rate” and likely won’t need to cut interest rates much more from here, also touched on market breadth in the new year after the rapid rise in mega-cap Big Tech stocks.
According to the latest Bank of America Fund Manager Survey, “long Magnificent 7 is considered the most crowded trade” per 57% of surveyed investors.
“It’s been such a Mag 7 market,” Demmert said. “In 2025, we think those stocks do well, but other stuff will also do well or better” amid more attractive valuations and AI-driven use cases, which are expected to fuel earnings.
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Homebuilders confidence flat in December amid rate uncertainty
Homebuilder confidence was flat in December from the previous month and came in lower than analyst estimates amid uncertainty over how quickly mortgage rates will decline.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index stayed at 46 in December, lower than economists’ estimates of 47, per Bloomberg data.
Any reading under 50 indicates more builders view conditions as poor rather than good.
“While builders are expressing concerns that high interest rates, elevated construction costs and a lack of buildable lots continue to act as headwinds, they are also anticipating future regulatory relief in the aftermath of the election,” NAHB chairman Carl Harris, a custom home builder from Wichita, Kan., said in a press statement “This is reflected in the fact that future sales expectations have increased to a nearly three-year high.”
Mortgage rates have dropped for the last three consecutive weeks, with the average 30-year mortgage rate holding at 6.6%, according to Freddie Mac.
There’s a growing expectation that the Federal Reserve will cut the federal funds rate by 25 basis points at the conclusion of its meeting on Wednesday. The decrease has already been baked into current mortgage interest rates, so housing experts don’t expect mortgage rates to drop further.
NAHB chief economist Robert Dietz writes: “Concerns over inflation risks in 2025 will keep long-term interest rates, like mortgage rates, near current levels with mortgage rates remaining above 6%.”
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Stocks open lower ahead of Fed meeting kickoff
US stocks fell on Tuesday as investors look ahead to the start of the last Federal Reserve policy meeting of the year, with all bets pointing to a 25 basis point interest-rate cut.
The Dow Jones Industrial Average (^DJI) slid roughly 0.5%, coming off an eighth straight day of losses for the blue-chip index. The benchmark S&P 500 (^GSPC) and tech-heavy Nasdaq Composite (^IXIC) also lost about 0.5%. The Nasdaq closed at a record high on Monday.
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November retail sales top Wall Street’s expectations
November retail sales grew at a faster pace than Wall Street analysts had expected, reflecting continued resilience in the American consumer and indicating that the holiday shopping season in the US is off to a strong start.
Retail sales rose 0.7% in November. Economists had expected a 0.6% rise in spending, according to Bloomberg data. Meanwhile, retail sales in October were revised up to a 0.5% increase from a prior reading that showed a 0.4% increase in the month, according to Census Bureau data. A 2.4% month-over-month increase in motor vehicle and auto parts sales, as well as a 1.8% increase in online sales, drove the gains.
November sales, excluding auto and gas, rose 0.2%, below consensus estimates for a 0.4% increase. The control group in Tuesday’s release, which excludes several volatile categories and factors into the Gross Domestic Product reading for the quarter, increased by 0.4%, in line with estimates.
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