Dow dives 1,100 pts, posts longest losing run since 1974 after Fed's cautious 2025 rate forecast

The S&P 500 tanked 3 percent, and the Nasdaq Composite plunged 3.3 percent.

The Dow Jones Industrial Average nosedived nearly 1,100 points overnight, extending its losing streak to the 10th session for the first time since 1974. The Federal Reserve, despite cutting rates by an expected 25 basis points, forecasted just two more rate cuts in 2025, lower than the previous estimates of four reductions, dragging market sentiment.

The Dow plummeted 2.5 percent, marking its steepest drop since August and nearing its worst losing streak since an 11-day tumble in 1974. Meanwhile, the S&P 500 tanked 3 percent, and the Nasdaq Composite plunged 3.3 percent.

The Fed took a cautious stance at its last policy meeting of 2024 as it sees upside risks to inflation in 2025. The Fed's shift in policy reflects a "wait-and-watch" approach in anticipation of the impending Trump administration's economic policies. In the face of these uncertainties, the Fed has opted for a cautious stance, stating higher uncertainty around the inflation trajectory.

As a result, the likelihood of a rate cut at the Fed's upcoming January meeting dropped to just 11 percent, according to the CME FedWatch tool. Prior to the meeting, traders had anticipated the Fed would continue with aggressive rate cuts in 2025, potentially propelling the bull market further. However, the Fed's cautious outlook led to a surge in US Treasury yields, which put additional pressure on US equities. The benchmark 10-year Treasury yield surpassed 4.5 percent in response.

The Dow's losing streak started after it reached an all-time high, closing above 45,000 for the first time on December 4. During its losing streak, the Dow has slipped around 4 percent. Ritesh Jain, founder of Pinetree Macro, pointed out that a momentum trade was unfolding as the year-end approached, with many fund managers feeling the need to chase top performers to outperform their benchmarks. "As a result, they are selling non-tech stocks to buy into mega-cap tech stocks, and this trade is gaining momentum," Jain remarked.

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