Well, the Fed came through with its expected quarter point cut in interest rates at the end of today's FOMC meeting; however, the Fed's announcement was accompanied by an updated "dot-plot" graph that revealed only two expected rate cuts in 2025. The last dot-plot update in September indicated four proposed cuts, so this reduction in expected cuts for next year was a bit of a shock to many investors. Jerome Powell's 2:30 press conference did not assuage investor's concerns over the hawkish dot-plot as Mr. Powell pointed out that inflation was moving sideways and this justified a more cautious approach to rate cutting in 2025.
Equity markets lost no time in responding to this hawkish news with a hefty sell-off immediately following the release of the Fed statement at 2:00 pm. The DOW was down 1,123 points by the closing bell. Although many (including myself) were surprised by this sharp sell-off, it was not totally unexpected as our cycle analysis of this market indicated late stage medium-term cycles in all three market indices (DOW, S&P 500, and NASDAQ) that were due to bottom soon. As I've mentioned in previous blogs, when a medium-term cycle makes its final corrective drop, we like to see it test or even break below its 15-day and/or 45-day moving averages. Today's plunge brings the DOW well below those averages. The S&P 500 also closed below its 15-day and 45-day moving averages, and the NASDAQ closed below its 15-day, but still above its 45-day moving average.
The DOW and S&P 500 have been falling for nearly two weeks, but today is only day 3 for the NASDAQ's fall from its all-time high of 20,204 on Monday. A final corrective drop in a medium-term cycle should last from 2 - 5 weeks, so the NASDAQ has to fall some more to satisfy that requirement. If today's panic sell-off continues into next week, that shouldn't be a problem, and should that happen, the NASDAQ could take the DOW and S&P down along with it. We are staying on the sidelines of the broad stock market as we see how this plays out.