U.S. stock futures saw modest gains overnight, with Dow Jones, S&P 500, and Nasdaq futures all edging higher. Investors are awaiting the Federal Reserve’s upcoming decision, scheduled for Wednesday afternoon, with expectations of a hawkish rate cut.
The broader stock market rally remains weak, with the Nasdaq retreating from record highs as growth stocks continue to face pressure. The Dow Jones Industrial Average dipped below key support levels, extending its losing streak to the longest since 1978. Nvidia’s recent struggles intensified, further weighed down by negative comments from Microsoft, while Tesla continued its upward momentum.
Fed Rate Cut Expected, Hawkish Guidance in Play
The Federal Reserve’s final meeting of the year is set to conclude on Wednesday, with an announcement expected at 2 p.m. ET. Markets anticipate a quarter-point rate cut, marking a total of 100 basis points in cuts over three meetings. Despite solid economic growth, inflationary pressures remain, leading investors to expect a dovish rate cut paired with somewhat hawkish guidance.
Key elements of Wednesday’s meeting include updated economic projections, the Fed’s “dot plot” rate forecasts, and remarks from Chairman Jerome Powell. These elements will provide crucial insights into the central bank’s future stance.
Stock Market Movement: A Weak Session for Major Indices
Tuesday saw another down day for major indices, with the Nasdaq joining the broader market in experiencing weak breadth. The Dow Jones Industrial Average fell 0.6%, marking its ninth consecutive decline and closing just below the 50-day moving average. The S&P 500 slid 0.4%, maintaining support at its 21-day line, while the Nasdaq dropped 0.3%, retreating from Monday’s record high. The Russell 2000 index, representing small-cap stocks, slumped 1.2%, nearing its 50-day line.
Among sector ETFs, the First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) lost 0.4%, while the Invesco S&P MidCap Momentum ETF (XMMO) tumbled 1.4%. On a positive note, the ARK Innovation ETF (ARKK) saw a modest gain, although other major ETFs, such as the VanEck Vectors Semiconductor ETF (SMH), experienced declines.
Tesla and Nvidia Stocks in Focus
Tesla (TSLA) continued its strong performance, rising 3.6% to $479.86, extending its monthly gain to 39% following a 38% surge in November. Tesla’s success is driven by strong sales in China and the ongoing rollout of Full Self-Driving (FSD) software, with version 13 now widely available. Optimism around the company’s self-driving capabilities remains a key driver for its stock price.
Nvidia (NVDA), on the other hand, faced significant challenges. Shares fell 1.2% to $130.39, marking the fourth consecutive decline and the eighth drop in the past nine sessions. The chipmaker’s troubles were compounded by comments from Microsoft CEO Satya Nadella, who downplayed chip supply constraints. Additionally, concerns over Nvidia’s Blackwell chips and competition from custom in-house chips weighed on the stock.
Market Outlook: Caution Advised
The broader stock market rally appears to be losing momentum, with only a few high-profile stocks, such as Tesla, providing strong gains. The market remains divided, with some sectors showing strength while others struggle. As the Federal Reserve’s decision looms, investors are advised to proceed with caution. If planning new investments, it’s crucial to remain agile and ready to exit quickly if market conditions change.
Several stocks are currently forming bases or handles and may present buying opportunities if the market strengthens. However, in light of current headwinds, investors should focus on managing risk and preparing for potential volatility in the short term.
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