[New York Stock Market] Around 1% Decline Amid Tightening and Recession Concerns... A Week That Shattered Santa Rally Expectations

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] Major indices on the U.S. New York Stock Exchange closed down around 1% on the 16th (local time) amid ongoing concerns over tightening by the Federal Reserve (Fed) and other major central banks, and the resulting fears of an economic recession.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 32,920.46, down 281.76 points (0.85%) from the previous session. The S&P 500, which focuses on large-cap stocks, fell 43.39 points (1.11%) to 3,852.36, while the tech-heavy Nasdaq dropped 105.11 points (0.97%) to 10,705.41.

All three major indices declined for the second consecutive week, dampening expectations for a year-end Santa rally. The S&P 500’s weekly decline exceeded 2%, and its drop since December began has reached the 5% range.

By sector, all 11 sectors within the S&P 500 fell. Notably, real estate, energy, healthcare, technology, and utilities sectors experienced significant declines.

Among individual stocks, Meta Platforms rose 2.82% after JP Morgan upgraded its buy rating and raised its target price. Adobe increased 2.99% following better-than-expected earnings and an improved annual outlook. Goldman Sachs fell nearly 1% after news of planned staff reductions early next year. Tesla, which has recently seen notable declines, dropped nearly 5% again. Other major tech stocks such as Apple (-1.46%), Nvidia (-2.25%), and Microsoft (-1.73%) also underperformed.

Investors remained focused on concerns that tightening by the Fed and other major central banks could lead to a future recession.

John Williams, President of the Federal Reserve Bank of New York, stated in an interview that "the terminal rate for further hikes could be higher." Previously, the Fed’s dot plot released at the December Federal Open Market Committee (FOMC) meeting raised the projected terminal rate for next year from 4.6% in September to 5.1%. With Williams, the Fed’s third-ranking official, suggesting it could go even higher, concerns over tightening intensified. Mary Daly, President of the San Francisco Fed, also welcomed recent signs of slowing inflation but emphasized that "we are still far from the inflation target," reaffirming the commitment to tightening.

However, the market is betting that given recent recession fears and slowing indicators, the Fed will find it difficult to raise rates above 5%. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market sees less than a 30% chance that the benchmark rate will rise above 5.0%?5.25% by May next year. It reflects about a 50% chance for a 4.75%?5.0% range.

Jeremy Siegel, professor at the University of Pennsylvania’s Wharton School, appeared on CNBC’s Squawk on the Street and criticized, "The Fed is making a terrible mistake. Their plan and dot plot are too tight." He argued that since the Fed’s plan increases the likelihood of a recession, further hikes or rate increases should be avoided.

Evercore ISI, a major Wall Street investment advisory firm, also analyzed that the Fed’s projection of 0.5% GDP growth next year and a significant rise in unemployment forecasts effectively signal a warning of recession.

According to a poll released by The Wall Street Journal (WSJ) on the day, more than half of Americans hold a pessimistic view of the economy next year. When asked "What do you think will happen to the U.S. economy next year?" 52% of respondents answered "It will get worse." Only 25% said "It will get better," and 18% said "It will be about the same as this year."

Released economic indicators also heightened recession concerns. The U.S. manufacturing Purchasing Managers’ Index (PMI) for December, compiled by S&P Global, recorded 46.2, marking the lowest level in 31 months. A reading below the baseline of 50 indicates contraction in the manufacturing sector. The U.S. services PMI for December also fell to 44.4 from 46.2 in the previous month.

Kim Forrest, founder of Bokeh Capital, said, "Earlier this week, the market had hoped that the Fed and other central banks might become less hawkish following a weaker-than-expected Consumer Price Index (CPI), but they did not. Instead, they firmly stated their commitment to lowering inflation, dashing hopes for a soft landing."

Oil prices also fell amid recession fears. On the New York Mercantile Exchange, West Texas Intermediate (WTI) crude oil for January delivery closed at $74.29 per barrel, down $1.82 (2.4%) from the previous session. WTI prices declined for the second consecutive trading day.

This content was produced with the assistance of AI translation services.