Fed's Rate Cut Reality Check Sends Markets Into Meltdown

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Welcome to Equity Espresso’s Market Recap.

It was fun while it lasted - the Aussie stock market copped a savage sell-off, with the S&P/ASX 200 index falling 1.70% or 141.2 pts. to 8168.20, reaching a six-week low. It was the largest one-day sell-off in percentage terms since early August. What caused the big drop? The U.S. Federal Reserve announced it would reduce the expected number of interest rate cuts in 2025 from three to two, leading to a broad sell-off across all sectors. The Australian dollar dropped to a two-year low of US62.25¢.

The Technology (-2.52%) sector emerged as the worst performer, following the Nasdaq’s even sharper drop of 3.56%. Companies like WiseTech Global (-2.17%), Xero (-2.56%), and TechnologyOne (-1.76%) all saw sharp drops.

The Materials (-2.02%) sector was particularly hard hit, declining with major mining companies like Fortescue (-3.88%), BHP Group (-1.47%), and Rio Tinto (-0.92%) all suffering losses.

Bitcoin wasn’t spared from the sell-off, retracting by around 6% to trade at around US$101,280. Gold miners Newmont (-3.60%) and Northern Star Resources (-4.07%) also saw significant drops as gold prices fell to their lowest level in a month.

ASX Company News

• ANZ (-2.76%) stock dropped, tracking a broad sell-off in the banks and after more than a third of shareholders voted against its remuneration report in a significant protest that has seen outgoing chief executive Shayne Elliot give up bonuses worth more than $3 million.

• Mesoblast's (+54.04%) stock surged following FDA approval of Ryoncil, their mesenchymal stromal cell therapy for treating steroid-refractory acute graft versus host disease in children.

• Patriot Battery Metals (+15.87%) secured a significant investment from Volkswagen, with the automaker investing C$69 million for a 9.9% stake at C$4.42 per share while also committing to purchase 100,000 tonnes of lithium concentrate annually for 10 years.

• Woodside (-1.74%) and Chevron have announced a major asset swap where Woodside will acquire Chevron's stakes in the North West Shelf Project and related assets while transferring its interests in the Wheatstone and Julimar-Brunello Projects to Chevron, along with receiving up to $400 million in cash.

Wall Street

U.S. markets experienced a significant downturn on Wednesday following the Federal Reserve's decision to cut interest rates by 0.25%, with investors reacting negatively to indications that rate cuts in the coming year might be less aggressive than anticipated. The S&P 500 fell 2.95%, while the Nasdaq and Dow Jones dropped 3.56% and 2.58% respectively.

The decline was particularly notable for the Dow Jones, which marked its tenth consecutive day of losses - its longest losing streak since October 1974. The selloff was broad-based, affecting both large and small companies, with the Russell 2000 small-cap index experiencing its steepest single-day decline since June 2022, falling 4.39%.

General Mills (-3.06%) stock dropped after downgrading its financial outlook, projecting adjusted earnings per share to decline 3% to 1%, a more pessimistic forecast than its previous guidance of -1% to +1% growth. Jabil (+7.26%) stock surged after earnings and guidance surpassed Wall Street expectations. Jabil posted $2 in core earnings per share on $6.99 billion in revenue for the first quarter, while analysts anticipated just $1.88 a share and $6.61 billion.

S&P500 Sector Performance

Economic Data

• The U.S. Federal Reserve announced another 25bps cut to the federal funds rate in December 2024, marking the third consecutive reduction this year and bringing borrowing costs to the 4.25%-4.5% range, in line with expectations.

• The Bank of Japan maintained its key short-term interest rate at around 0.25%, retaining it at the highest level since 2008 and meeting market expectations.

• The U.K Annual Inflation rate increased for a second month to 2.6% in November 2024 from 2.3% in October, matching forecasts.

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🌎️ Around The Globe

• Databricks has secured $8.6 billion of a planned $10 billion non-dilutive financing round, valuing the A.I. and data company at $62 billion.

• The FTC has implemented a new rule mandating that ticket sellers and hotels must show total prices at the beginning of transactions, similar to recent regulations for airlines and credit cards currently facing legal challenges.

• Grammarly has announced its acquisition of productivity startup Coda, with Coda's co-founder Shishir Mehrotra stepping in as Grammarly's new CEO.

• Honda and Nissan have reportedly initiated plans to merge under a holding company structure, according to a Nikkei newspaper, with discussions aiming to enhance their competitive position in the evolving auto industry.

• Nvidia has launched a new $249 Jetson Orin Nano Supercomputer, a more affordable and powerful version of its portable AI processing device. The new model, which costs half the price of its predecessor while offering nearly double the speed and 70% more computational capacity, aims to make AI development more accessible to hobbyists, students, and small companies.

• Waymo is expanding internationally by planning autonomous vehicle testing in Tokyo in early 2025, partnering with major taxi operator Nihon Kotsu and taxi app GO.

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*1-year, 3-year and 5-year returns are calculated as of November 30 2024.

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