S&P 500 Retreats as Expected Rate Cuts in 2025 Drops to Two

The Fed giveth and the Fed taketh away.

That’s the lesson for investors following the week-to-week action in the S&P 500 (Index: SPX), which fell by over 0.6% to close out the trading week ending on Friday, 13 December 2024 at 6,051.09.

That retreat came after the preceding week’s near one-percent gain, which came as expectations there would be three rate cuts in 2025 took hold. But just one week later, the CME Group’s FedWatch Tool projects only two rate cuts in 2025, quarter point reductions that will be announced on 19 March (2025-Q1) and 18 September (2025-Q3). A third rate cut in 2025-Q2 now seems to no longer be in the forecast.

Meanwhile, the CME Group’s is giving 96% probability the Fed reduce the Federal Funds Rate by 0.25% later this week, on Wednesday, 18 December 2024. Investors will be paying close attention to statements being made by Fed officials, particularly if they give any suggestion as to the prospects of a rate cut in 2025-Q2.

This future quarter matters because investors are closely focusing their forward-looking attention on it as they set current day stock prices. The latest update of the alternative futures chart shows where things currently stand:

What happens next depends on the random onset of new information, although in this upcoming week, the new information with the most potential to reshape the future expectations of investors is scheduled. Until then, here are the past week’s market moving headlines:

Monday, 9 December 2024

• Signs and portents for the U.S. economy:

• Oil rises over 1% on ouster of Syria’s Assad, Chinese monetary policy

• US average gasoline price drops below $3 a gallon for the first time since 2021

Fed minions December 2024 rate cut “baked in”:

• AMERICAS Fed cut gets baked in, China shifts monetary stance

Bigger stimulus, trouble developing in China:

• China vows to ramp up policy stimulus to spur growth in 2025

• China’s Nov bank lending seen doubling as stimulus kicks in

China’s inflation weakens as new risks cloud horizon

Bigger trouble developing in Japan, BOJ minions get data pushing them to increase interest rates:

• Japan’s bankruptcies set to hit 11-year high in 2024, data shows
• Japan revises Q3 GDP higher, keeps alive BOJ rate-hike expectations

Eurozone a developing mess:

• To Europe’s economic malaise, add a leadership void

Dow ends lower, S&P 500, Nasdaq pull back from record highs as Nvidia loses ground

• Wall Street closes down as tech stocks fall

Tuesday, 10 December 2024

• Signs and portents for the U.S. economy:

• Oil prices rise on China stimulus, possible tight supply in Europe

• US net crude oil imports to fall by 20% in 2025 to lowest since 1971, EIA says

US importers set to accelerate shipments to record levels on tariff, strike threats

Brokerages “bake in” December 2024 rate cut by Fed minions:

• Brokerages still expect 25-bps US rate cut in December
• Federal Reserve to cut rates by 25 bps on Dec. 18, pause in January: Reuters poll

Bigger trouble, stimulus developing in China:

• China’s exports slow sharply, imports shrink ahead of Trump tariffs

• VIEW China’s November export growth slows ahead of Trump tariffs

China has full confidence in achieving this year’s growth target, says Xi

ECB minions not liking their latest Eurozone problem child:

• The European Central Bank’s French Headache

S&P, Dow, Nasdaq end listless session lower with CPI inflation on deck; Oracle slides

• Wall St indexes fall with inflation data and rates in focus

Wednesday, 11 December 2024

• Signs and portents for the U.S. economy:

• US inflation rose to 2.7% in November

• US consumer prices post largest rise in seven months; rents finally slowing
• VIEW In-line Nov US CPI rise leaves door open for Dec ease

Oil up on demand hopes from China’s ‘looser’ monetary policy

• OPEC makes fifth and biggest cut to 2024 oil demand growth forecast

Big bank CEOs unusually positive:

• BofA CEO says business outlook is brighter under Trump, expects surge in banking, trading revenue
• BNY CEO optimistic on US economic growth, AI potential

Bigger trouble, stimulus developing in China:

• China ready to go deeper into debt to counter Trump’s tariffs
• Exclusive: Chinese authorities are considering a weaker yuan as Trump trade risks loom

• China’s yuan plans and a look at inflation

BOJ minions credibility coming on the line, again:

• Japan’s wholesale inflation accelerates, keeps BOJ rate-hike plan in focus

• Explainer: How likely is a Bank of Japan rate hike next week?

Japan manufacturers’ mood turns negative for the first time in 10 months – Reuters poll

Other central banks taking different tacks on interest rates:

• Bank of England set to stay in central bank slow lane and keep rates on hold
• Bank of Canada likely to reduce interest rate by 50bps
• Brazil’s central bank hikes more than expected, signals more tightening ahead

Driving ability of ECB minions questioned:

• ECB’s rearview mirror ignores economic crash ahead

Tame US inflation boosts S&P 500, Nasdaq rallies above 20,000

• Stunning rally in Big Tech drives Nasdaq to 20,000

Thursday, 12 December 2024

• Signs and portents for the U.S. economy:

• U.S. Producer Prices Rise 0.4% in November, Well Above Expectations

• Eggs boost US producer prices in November, but services inflation slowing

US 30-year fixed-rate mortgage falls to 6.60%

Oil little changed as IEA surplus forecast offsets rate cut optimism

Bigger trouble, stimulus developing in China:

• China pledges more debt, rate cuts as Trump tariff threats loom

BOJ minions to boldly ignore inflation and keep lower rates going longer:

• Japan Nov inflation likely accelerated, exports up on weak yen: Reuters Poll
• Exclusive: BOJ leaning toward keeping rates steady next week, sources say
• BOJ to skip rate hike in December, majority of economists say

Other central banks acting to cut rates:

• SNB cuts interest rate 50 basis points, biggest reduction in nearly a decade

ECB minions deliver expected Eurozone rate cut:

• ECB cuts rates again and keeps door open to further cuts
• ECB cuts interest rates for fourth time this year
• Lagarde comments at ECB press conference
• Handful of ECB policymakers wanted larger cut, worried about tariffs – sources

Dow, S&P end lower, Nasdaq drops from peak as Adobe tumbles, PPI inflation comes in hot

Wall Street closes lower as investors assess data after recent gains

Friday, 13 December 2024

• Signs and portents for the U.S. economy:

• Oil up 2%, settles at 3-week high as more sanctions loom on Russia, Iran

Fed minions still expected to deliver quarter point rate cut next week:

• US data has Fed striding toward rate cut next week, and tip-toeing into 2025

Bigger stimulus not measuring up in China:

• China bank lending rises far less than expected, more policy steps needed

BOJ minions get new reason to not rate hike Japan’s intereest rates:

• BOJ’s rate hike plans clouded by small firms’ wage woes

ECB minions say they’ll think about more rate cuts as bigger trouble develops in the Eurozone:

• ECB governors back more rate cuts if inflation settles at goal

• ECB’s Centeno sees further gradual rate easing in coming quarters

German exports fall more than expected in October

Euro zone industry did not fall in Oct but recovery not in sight

Wall Street averages close mixed while Broadcom ends week by surging to $1T market cap

• Broadcom hits trillion-dollar valuation on lofty forecasts for AI demand
• Negative market breadth, hot inflation data snaps S&P 500′s three-week win streak
• Only a third of the S&P 500 is outperforming the index

The Atlanta Fed’s GDPNow tool’s estimate of the real GDP growth rate for the current quarter of 2024-Q4 had no updates in the past week and was unchanged at +3.3%.

On an upcoming programming note, the last edition of the S&P 500 chaos series this year will be on Monday, 23 December 2024.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Wall Street bear who is taking a present away from a Wall Street bull”. The image we got wasn’t what we prompted, but we decided we could work with it….