On January 3, U.S. stocks experienced significant losses after the release of the Fed minutes highlighting increased uncertainty about the policy path. While the Dow Jones Industrial Average fell 0.76 percent to 37,430.19, the S&P 500 sank by 0.80 percent to 4,704.81, and the Nasdaq Composite Index shed 1.18 percent to 14,592.21.
Eight of the 11 primary S&P 500 sectors ended in the red, with real estate and consumer discretionary experiencing the most losses at 2.35 percent and 1.88 percent, respectively. On the other hand, energy and utilities were the gainers, with increases of 1.52 percent and 0.39 percent, respectively.
The Fed meeting minutes explained that some committee members considered maintaining the funds rate at an elevated level if inflation did not cooperate, while others believed in the potential for additional hikes depending on evolving conditions.
The minutes stressed the need for a careful and data-dependent approach to monetary policy decisions. Fed officials also highlighted the importance of maintaining a restrictive stance on policy until inflation clearly moved down toward the committee’s objective.
Richmond Fed President Thomas Barkin expressed concern about policy, emphasizing the risks associated with guiding the economy to a soft landing.
Despite the cautious tone from Fed officials, the market still anticipates aggressive cuts by the central bank in 2024. The minutes suggested that the policy makers were “behind the curve” in terms of how quickly inflation had fallen, according to Luke Tilley, the chief economist of Wilmington Trust, which manages approximately 80 billion dollars in assets.
The U.S. labor market cooled in November, with job openings reaching a 32-month low of 8.8 million, according to the Bureau of Labor Statistics’ JOLTS report. Additionally, the U.S. manufacturing sector continued to shrink for the 14th consecutive month in December, based on the ISM manufacturing PMI.
However, Tim Fiore, the chair of the ISM manufacturing survey committee, forecasted that the ISM factory index would rise above the 50-percentage-point threshold by March, suggesting a positive outlook for the sector.
Stuart Kaiser, head of equity trading strategy at Citigroup Global Markets, anticipates a shift in focus in 2024 from recession and inflation tail risks to different aspects such as growth, policy, and cross-asset relationships.
