US Stocks Drop as Traders Ponder Fed’s 2025 Path: Markets Wrap

(Bloomberg) -- Stocks declined as traders weighed strong US retail sales data and braced for the Federal Reserve’s rate decision and its forecast for next year.

The Nasdaq 100 fell 0.4% while the S&P 500 slipped 0.3%. The yield on 10-year Treasuries dropped two basis points to 4.38%. Bloomberg’s dollar gauge was little changed.

US retail sales increased at a firm pace in November, highlighting consumer resilience. While the data didn’t seem to change expectations for a rate cut by the Fed on Wednesday, there is an understanding that the central bank will prepare the market for a pause early next year, said Ian Lyngen of BMO Capital Markets. Industrial production data also came in Tuesday, declining for a third month in November. 

Traders will now be focusing on Wednesday’s Fed announcement — its last rate decision of the year. A quarter-point cut is widely expected, but what happens in the following months is less clear. While the US economy is resilient, the prospect of inflationary import tariffs proposed by the incoming administration of Donald Trump may give Fed officials pause about the pace of further moves.

“Whether tomorrow’s Fed decision is positive, negative or neutral for stocks and bonds likely won’t be determined by any actual rate cut, but instead by what the FOMC says about cuts in 2025,” wrote Tom Essaye, president and founder of Sevens Report and a former Merrill Lynch trader. 

More strong economic data like retail sales could bolster the case for the Fed to pause in January, said Chris Larkin, managing director, trading and investing, E*Trade from Morgan Stanley. 

Currencies and Central-Bank Bets

In Canada, inflation dropped below the central bank’s target for the second time in three months. The data is expected to give Bank of Canada officials confidence that their rapid rate cuts didn’t derail their efforts to keep price gains at the 2% target. However, persisting political discord in Canada pushed the loonie to a Covid-era low. 

Concerns over Brazil’s ballooning debt and deficits pushed the real to all-time lows. To stem the slide in the currency, its central bank sold over $3 billion in local markets in back-to-back auctions — its fourth intervention in three days.

Elsewhere, money markets continued to trim wagers on Bank of England interest-rate cuts as attention turns to Wednesday’s UK November inflation figures. Traders place the chance of a third quarter-point reduction next year at 25%, down from 90% on Monday. Gilt yields rose.

Earlier, index of Asian currencies fell to the lowest in more than two years amid pessimism over China’s economic outlook and expectations that Trump policies will drive gains in the greenback. 

Among other notable currencies, the yen snapped a six-day losing streak. The yen’s rapid decline in the past week had strategists warning that further weakness may trigger verbal intervention from authorities and add pressure on the Bank of Japan to hike rates. 

Meanwhile, oil fell for a second day after Chinese economic data stoked concerns about demand and equity markets slipped. 

Key events this week: 

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Sagarika Jaisinghani, Vildana Hajric and Andre Janse van Vuuren.

©2024 Bloomberg L.P.