Editor's Note: For those who might sense a little (or a lot) bit of joy on the pages of Money Daily whenever stocks decline, you're right. Anybody with a realistic outlook should have seen that stocks were stretched to extremes weeks or even months ago and caution has always been advised here, whether stocks are up, down, or treading water, and so, when markets correct, it's a kind of validation.Nobody is happy losing money and only psychopaths or sociopaths are happy seeing other people lose money, but, it's a cold, often cruel world, and if fat cat bankers and hedge fund billionaires lose some dough, well, maybe it's worthy of a little celebration. The people who really get hurt badly in situations like the one that appears to be unfolding are those passive "investors" stuck 401k plans or other vehicles over which they have little to no control, and that's a shame, though really, they have nobody but themselves (and their greediness) to blame.
Everybody got hurt today. All assets were marked down, but some worse than others. The difference lies in asset allocation. Paper assets got slaughtered. Owners of gold, silver, real estate, business assets still have what they started with, only the perceived value is lower. With stocks, bonds, bitcoin, etc., it's more of a reality. Those got marked down and some may not recover. The warnings have been apparent for some time (the Dow doesn't lose ground nine straight sessions for no good reason) and Wednesday's drawdown must be put into perspective. It's probably the beginning of something much larger. -FR
Anybody who was bidding up Dow stocks prior to the FOMC rate decision on Wednesday got their rumps handed to them in a memorable afternoon of relentless selling pressure extending the Dow's losing streak to 10 sessions, down
At 2:00 pm ET on Wednesday, December 18, the FOMC of the Federal Reserve issued the following press release:
Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee's 2 percent objective but remains somewhat elevated.The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage?backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller. Voting against the action was Beth M. Hammack, who preferred to maintain the target range for the federal funds rate at 4-1/2 to 4-3/4 percent.
For media inquiries, please email media@frb.gov or call 202-452-2955.
At the same time, the Fed released economic projections [PDF] of FOMC meeting participants, which showed the majority (10 of 19) thought the federal funds target rate would be between 3.75% and 4.00% in 2025, implying that the Fed may only be cutting the rate two more times next year, most likely at the next two meetings, in January and March.
Longer term, the projections were between 3.00% and 4.00% for 2026, with a slight bias toward the lower end of that range. The projections for 2027 centered around 3.00-3.25%, and longer run from 2.75% to 3.00%.
Historically, these projections seldom turn out to be correct, as economic conditions change in unforeseen ways. These current projects likely fail to take into account actions and fiscal policies by the incoming Trump administration, which may be more austere than the Federal Reserve wishes to admit.
Wall Street's reaction was decidedly negative, sending the Dow down by more than 300 points immediately after the release, erasing gains from earlier in the day. The NASDAQ and S&P, which were hovering just above the flat line prior to the announcement, sank into negative territory.
During Chairman Powell's question and answer period, he stated, "It's pretty clear we've avoided recession." Circle that line because it may turn out to rank right up there with "sub-prime is contained," and "inflation is transitory." The coming six to 18 months are fraught with downside risk, especially considering the establishment of Elon Musk and Vivek Ramaswamy's Department of Government Efficiency (DOGE), their stated goal being reducing government outlays by as much as $2 trillion within the next 18 months (by July 4, 2026).
At the end of the day, the Fed's latest policy decision gave investors plenty of cover to trim exposure and take profits before year-end. What happens next is anybody's guess, but, weighing the direction of stocks and bonds of late against future developments in congress and by the White House, odds and indications seem to be anticipating shocks to the U.S. economy in the coming year.
This flushing of stocks should serve to mark the end of the rally that began some 13 months ago, in late October of 2023. Comprised of excessive valuations and hype surrounding Artificial Intelligence (AI), stocks posted extraordinary gains which were based largely on flawed data (employment) and loose economic conditions. Signals were given by the Fed when they began a rate-cutting cycle in September, sensing that the U.S. economy was headed for recession.
Those fortunate enough to buy stocks in November and December of last year have now sold them for outstanding gains and a lower capital gains tax if held for more than a year. As is usually the case, those who joined the party late - from July through November are now looking at losses and hoping for a rebound in 2025.
Good luck with that.
Today's losses were the largest in well over a year's time on all the major indices. Anybody who is looking for a "Santa Claus" rally within the last eight trading days of the year might better consider hoping for some January froth, which, as any expert trader will attest, is not a cogent strategy.
The worst of it all may have been the radical downturn for recent buyers of bitcoin, which dumped nearly five percent, down more than $5,000 when equity indices closed. The slide into the evening and by early morning the price had descended below $99,000. There's been some comeback early morning Thursday, but bitcoin remains a purely speculative play.
Equally extreme was the move lower in gold and silver. Gold, which has been in a downtrend since just prior to the election, was slaughtered today, losing $60, down more than two percent. Silver was even worse, down nearly four percent, to $29.77, a three-month low. It would not be surprising to see both gold and silver drop even further as the days until Trump's inauguration dwindle and then his presidency becomes reality.
Gold breaking below $2,600 would not br significant. Silver losing touch with $30, is, and such slippage could usher in even more panicky Christmas-related selling, more wild naked shorting in the futures market and a cascading effect that could pull gold down with it. Remember: the Fed hates competition.
From a speculative or long-term position, a buying opportunity is being set up for those who enjoy the benefits of real money, i.e., gold and silver. Silver at $30 is not support. A range between $26 and $28 is probably a near-term bottom. In the case of a true crash of stocks into a bear market - which could happen - silver will be even lower, so, keep some cash handy.
Chris Irons at Quoth the Raven's Fringe Finance has an interesting take on Wednesday's market mayhem and leverage.
Also of note, Gregory Mannarino closed all his equity positions yesterday, joining Warren Buffett in the all-cash club, and, the Shiller PE, which recently was as high as 38.88, has dropped to a more reasonable 37.36, but is till well above the mean (17.19) and median (16.01). Reversion to the mean is an incontrovertible physical reality. Timing it is another thing altogether.
Bottom line, Wednesday's cram-down was not a one-off. If anything, the NASDAQ and S&P are just beginning to catch down to what the Dow was suggesting the past ten days. Topping it all off, like clockwork, congress is looking very much like it's going to create yet another crisis by shutting down the government Friday night. The continuing resolution (CR) put up by House Speaker Mike Johnson is so full of pork, provisions protecting congress from being investigated, and giving themselves another raise that even his own members are calling him out on it and a new, "plan B", cleaner CR is being considered
Stay tuned. This is only the first act of desperation.
For conspiracy theorists far and wide: shut down the government, declare an emergency, do not ratify the electors on January 6, postpone Trump's inauguration. Anybody who thinks drones flying around New Jersey are some kind of hoax knows little of the depraved behavior those about to lose power are capable of foisting upon the public and their enemies.
They will stop at nothing.
With less than an hour before Thursday's opening bell stock futures are exhibiting an overwhelming degree of hubris and misdirection, as if buying the dip at the open would be an appropriate action (hint: it's not). Dow futures are up more than 300 points, NASDAQ futures are ahead by 140, and S&P futures are up 44 points. Yeah, sure.
WTI crude oil has bounced back over $70, and bitcoin has rebounded to around $102,000. Gold and silver remain under pressure.
Today's magic numbers are 33 (days until Trurmp's inauguration), 7 (days until Christmas), and 8 (trading days left in 2024).
At the Close, Wednesday, December 18, 2024:
Dow: 42,326.87, -1,123.03 (-2.58%)
NASDAQ: 19,392.69, -716.37 (-3.56%)
S&P 500: 5,872.16, -178.45 (-2.95%)
NYSE Composite: 18,986.96, -530.65 (-2.72%)
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