STREAMING NOW: Watch Now

Dow slides to 2018 low after Fed disappoints

The Dow tumbled to the lowest level of the year on Wednesday after the Federal Reserve signaled a more aggre...

Posted: Dec 20, 2018 5:44 AM
Updated: Dec 20, 2018 5:44 AM

The Dow tumbled to the lowest level of the year on Wednesday after the Federal Reserve signaled a more aggressive stance than investors had hoped for.

Investors are worried that the Fed adjusted its economic growth forecast lower for 2019 while still signaling that it would continue to raise rates — albeit at a slower pace. Most Fed governors said they expect to hike rates only twice next year, after hiking four times this year.

Banking, finance and investments

Business, economy and trade

Financial markets and investing

Securities trading

Stock markets

Government organizations - US

Interest rates

The Fed

US federal departments and agencies

US government independent agencies

Economy and economic indicators

Economic policy

Monetary policy

Economic indicators

Stock indexes

Commodity markets

Economic forecast

Economic conditions

Economic growth

Jerome Powell

Political Figures - US

In a press conference Wednesday, Federal Reserve Chairman Jerome Powell said the economy at the end of the year was "more subdued than most expected," and recent "developments signal softening" in the economic outlook. However, he also noted that the "strong economy is benefiting many Americans."

All three major indexes fell after the announcement and the selloff deepened during the press conference. The Dow closed down 352 points, or 1.5%, wiping out an early rally of as much as 382 points. The S&P 500 fell 1.5%, while the Nasdaq lost 2.2%.

"The market talked itself into expecting a more dovish outcome from the Fed than they got," said David Joy, chief market strategist at Ameriprise Financial. "It's a real disappointment of majority of investors who were expecting something different."

It was the S&P 500's worst performance on a Fed decision day since September 2011, according to Bespoke Investment Group.

The turning point for stocks came after Powell said, "a little volatility doesn't leave a mark," hinting that the Fed isn't too worried about the recent market downturn.

Investors also worried about Powell's comments about the Fed's balance sheet. Powell said that in the past the Fed had decided the balance sheet would be on autopilot, using rate policy to react to incoming data. "I don't see us changing that," Powell said.

"The sense the balance sheet is on autopilot is worrying for equity investors," Keith Parker, head of US equity strategy at UBS.

Stocks moved even lower after Powell answered a question from CNN Business' Donna Borak. Asked how the Fed plans to communicate its future rate actions now that it has eight press conferences planned for next year, Powell started to say, "We'll have the ability to move eight times," before correcting himself: "Eight different meetings, not eight times."

It's possible investors thought Powell meant the Fed would hike rates eight times next year, although the Fed had at that point already signaled just two rate increases in 2019. Stocks rallied back just a bit from that point but remained depressed from earlier in the afternoon.

What's worrying investors

The stock market had priced in a steady stream of rate hikes next year. Investors typically like low rates, because higher interest rates pinch corporate profits and raise borrowing costs.

However, a slower pace of rate hikes in 2019 would not necessarily be great news.

The Fed signaled that it would slow its rollout because it expects economic growth to come down to earth a bit. The effect of the late-2017 corporate tax cuts are wearing off, and signs of an economic slowdown are starting to become apparent in the housing market, corporate outlooks and commodities markets.

"It does open the door to a slower pace of increases, which translates into a more patient Fed," said Lindsey Piegza, Stifel chief economist, on CNN Business' Markets Now live show with CNN Business editor-at-large Richard Quest Wednesday.

Piegza noted that the housing market has been particularly soft. She called attention to the fact that homebuyers are using more credit than historical norms to purchase their houses. That signals pay increases haven't quite taken hold the way economists hoped they would during the past decade's economic and job boom.

That, combined with other warning signs, calls into question whether the Fed should raise rates as strongly in 2019 as it did in 2018, Piegza said.

Still, Piegza predicts the economy will avoid a recession in 2019. Momentum will slow, however. She thinks the US economy will grow in a range of 1.5% to 1.8% next year, and it will probably enter a recession in 2020.

Next on Markets Now

Lindsey Bell, CFRA Research Investment Strategist, will join Quest to discuss the Fed's meeting and the stock market on "Markets Now" Wednesday.

"Markets Now" will streams live from the New York Stock Exchange again Thursday at 12:45 p.m. ET. Hosted by CNN's business correspondents, the 15-minute program features incisive commentary from experts.

You can watch "Markets Now" at CNN.com/MarketsNow from your desk or on your phone or tablet. If you can't catch the show live, check out highlights online and through the Markets Now newsletter, delivered to your inbox every afternoon.

Mississippi Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 64400

Reported Deaths: 1825
CountyConfirmedDeaths
Hinds5416112
DeSoto347227
Madison236360
Harrison228735
Rankin220231
Jackson215641
Jones182857
Forrest170155
Washington154835
Lauderdale137990
Lee129732
Neshoba126490
Lamar117713
Oktibbeha107737
Lowndes102333
Bolivar101032
Warren99531
Scott97820
Panola96012
Sunflower94223
Copiah92928
Lafayette90714
Leflore88261
Pike86133
Holmes85948
Grenada81921
Yazoo80312
Lincoln78741
Pontotoc7808
Leake77625
Simpson76730
Wayne74921
Monroe73151
Coahoma68410
Tate68327
Marion63419
Marshall6169
Covington60313
Adams59625
Winston59315
Union55215
George5454
Newton53011
Pearl River51537
Tallahatchie51210
Attala51024
Walthall48219
Chickasaw43819
Noxubee43811
Claiborne39913
Calhoun3929
Smith38913
Clay38014
Jasper3799
Alcorn3775
Prentiss3699
Hancock34914
Tishomingo3445
Itawamba32310
Clarke32225
Tippah32013
Tunica3076
Yalobusha30410
Lawrence3027
Montgomery3023
Humphreys28111
Carroll24811
Quitman2381
Greene23011
Kemper22715
Jefferson Davis2256
Perry2207
Amite2176
Webster21112
Jefferson1936
Wilkinson19313
Sharkey1913
Stone1603
Choctaw1294
Benton1280
Franklin1152
Issaquena241
Unassigned00

Alabama Coronavirus Cases

Confirmed Cases: 91776

Reported Deaths: 1639
CountyConfirmedDeaths
Jefferson12186230
Mobile9269204
Montgomery6350148
Madison512227
Tuscaloosa400269
Baldwin332223
Shelby311932
Marshall300134
Unassigned287856
Lee255442
Morgan227015
Etowah196728
DeKalb172113
Elmore163337
Calhoun162713
Walker147964
Houston133412
Dallas129823
Russell12672
St. Clair125214
Limestone122713
Franklin121520
Cullman117112
Colbert112213
Lauderdale111113
Autauga103021
Escambia98115
Talladega94613
Jackson8904
Chambers83238
Tallapoosa82778
Dale79823
Butler75435
Blount7453
Chilton7386
Coffee7255
Covington71620
Pike6727
Barbour5645
Lowndes56124
Marion54724
Marengo52914
Clarke4919
Hale45926
Bullock44411
Winston43511
Perry4324
Wilcox41110
Monroe3964
Randolph39210
Bibb3844
Pickens3769
Conecuh37310
Sumter36018
Lawrence3251
Macon31613
Washington31512
Crenshaw3073
Choctaw27612
Cherokee2497
Greene24711
Henry2473
Geneva2430
Clay2255
Lamar2052
Fayette1785
Cleburne1211
Coosa952
Out of AL00
Tupelo
Clear
87° wxIcon
Hi: 89° Lo: 67°
Feels Like: 88°
Columbus
Clear
91° wxIcon
Hi: 90° Lo: 68°
Feels Like: 95°
Oxford
Clear
88° wxIcon
Hi: 86° Lo: 64°
Feels Like: 88°
Starkville
Scattered Clouds
86° wxIcon
Hi: 88° Lo: 64°
Feels Like: 87°
WTVA Radar
WTVA Temperatures
WTVA Severe Weather