The Dow Jones Industrial Average experienced a dramatic plunge on Wednesday, dropping over 1,100 points, or 2.6%, as investor sentiment soured following a less-than-expected outlook from the Federal Reserve. The blue-chip index extended its losing streak to 10 consecutive days, marking its longest such stretch since 1974 during President Gerald Ford’s time in office.
The catalyst for the sharp decline was the Federal Reserve's latest policy statement, which revealed that the central bank now expects only two interest rate cuts in 2025, rather than the four initially projected. This adjustment reflects the Fed's expectation that inflation will persist above its target range for longer than previously anticipated. As a result, the Dow closed at 1,123 points lower, with the broader market also feeling the impact.
This marks the longest losing streak for the Dow since the period from September 20 to October 4, 1974, when it saw 11 consecutive days of losses. In comparison, the broader markets have remained relatively strong, with the S&P 500 falling by 3% and the Nasdaq Composite dropping 3.6% on Wednesday.
While investors had expected the Fed to reduce rates by a quarter point — which it did — the subsequent market reaction was less favorable. The Dow and other major indexes tumbled after the Fed’s statement about fewer rate cuts in the future, signaling that monetary policy will likely remain tight for an extended period. Jay Hatfield, CEO and CIO of Infrastructure Capital Advisors, referred to the Fed's action as a “hawkish cut,” contributing to the broader market's decline.
Before Wednesday's sharp fall, the Dow had already been experiencing a long losing streak, but it had still only lost less than 6% in that time. This was relatively mild compared to the larger declines seen in other major indices. The S&P 500 and Nasdaq had been at or near record highs, but both indexes experienced steep losses in response to the Fed's outlook.
The Federal Reserve's announcement significantly altered market expectations. Prior to Wednesday’s statement, investors had priced in a 98% chance of a rate cut during the Fed's January meeting. However, following Fed Chair Jerome Powell's press conference, traders adjusted expectations, reducing the probability of a rate cut to just 6% for next month, according to fed funds futures data.
"The market was underwhelmed by the likely future path of interest rates," said Chris Zaccarelli, CIO at Northlight Asset Management, pointing to the central bank’s cautious tone.
The Dow's decline was further compounded by poor performances from key stocks. UnitedHealth Group, a significant component of the index, has seen a 15% drop this month. This slide accelerated after the tragic shooting death of the company's CEO, Brian Thompson. Despite this, UnitedHealth managed to rise by about 3.3% on Wednesday, offering some relief.
Another notable contributor to the Dow's losses has been Nvidia, the chipmaking giant that recently joined the index in November. Although Nvidia stock has surged by over 180% this year, it has experienced a 5% drop in the past month, further dragging down the index.
Despite the 10-day losing streak, the Dow is still 14% higher for the year, having gained more than 5,000 points in 2024. Markets initially saw a strong surge following the election results, as investors welcomed the avoidance of recounts and court battles, coupled with optimism over President Trump's promises to reduce red tape and taxes.
As markets digest the Fed's shift in outlook, investors will be closely watching how this change in monetary policy impacts future economic conditions and market sentiment.4o mini
