Wall St notches second lower close as 2024 starts with profit-taking

By David French

(Reuters) -U.S. stock indexes closed 2024’s second session down again in extended profit-taking on Wednesday after a strong end to 2023, with minutes from the Federal Reserve’s December meeting failing to shake off the funk hanging over markets.

Fed policymakers appeared increasingly convinced that inflation was coming under control, with “upside risks” diminished and growing concern about the damage that “overly restrictive” monetary policy might do to the economy, the minutes released on Wednesday showed.

The minutes shed little light on when rate cuts might commence.

“I don’t think there’s anything too shocking” in the minutes, said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. Much of the messaging around rate cuts had already been previewed by Fed Chair Jerome Powell and other policymakers in recent weeks, he noted.

This included comments from Richmond Fed President Thomas Barkin, who said earlier on Wednesday that the U.S. central bank is “making real progress” towards taming inflation without inflicting major damage on the job market.

Investors have been cautious so far in 2024, wary of the central bank’s expected pivot to rate cuts this year and how quickly these might be implemented. This is especially after the blistering stock market rally at the end of 2023 extended valuation multiples.

The benchmark came within striking distance of its all-time closing high last week as signs of cooling inflation triggered investors to bet on an aggressive rate-cutting schedule. But Wall Street kicked off the new year on a dull note on Tuesday as Apple (NASDAQ:) and other high-growth companies came under pressure from higher Treasury yields.

The negative trend persisted on Wednesday, with shares of rate-sensitive megacap stocks including Nvidia (NASDAQ:) , Apple and Tesla (NASDAQ:) finishing down.

“We’ve had quite the rally off the October lows, and a lot of indicators are screaming overbought, so it’s not surprising to see a little bit of a breather,” said Natixis’ Melson.

While the Fed is widely expected to keep rates on hold in January, traders have priced in a 67% chance of a 25 basis point rate cut in March, as per CMEGroup’s FedWatch tool.

According to preliminary data, the S&P 500 lost 38.68 points, or 0.82%, to end at 4,704.15 points, while the Nasdaq Composite lost 176.80 points, or 1.18%, to 14,589.14. The Dow Jones Industrial Average fell 289.73 points, or 0.77%, to 37,425.31.

Airline stocks came under pressure as a jump in oil prices, following disruption at Libya’s top oilfield, raised concerns about fuel costs. The S&P 1500 passenger airlines index tumbled. [O/R]

Higher crude prices supported the energy index, the leading gainer among the minority of S&P sectors in positive territory.

Financials was among the sectors that traded lower, with Charles Schwab (NYSE:) and Blackstone (NYSE:) among those pulling down the index. They dropped after Goldman Sachs downgraded the stocks to “neutral” from “buy.”

However, Citigroup gained for a second straight day as the bank continued to benefit from a price target upgrade and an upbeat analyst report from Wells Fargo released the previous day.