Stocks struggled to find direction today as Federal Reserve Governor Christopher Waller’s surprisingly dovish comments sent Treasury yields tumbling and traders scrambling to reassess their rate cut expectations.
The major indexes wavered throughout the session, with the Dow Jones Industrial Average shedding 20 points while the S&P 500 remained essentially flat. The tech-heavy Nasdaq Composite declined 0.4% as some of the market’s biggest names faced selling pressure.
Waller, speaking on CNBC, opened the door to potential rate cuts in the first half of 2025, marking a dramatic shift from his previously hawkish stance. “As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” Waller said.
The comments triggered an immediate response in the bond market, with the yield on the 2-year Treasury note dropping to 4.25% while the benchmark 10-year yield retreated to 4.62%. Bond yields move inversely to prices.
But the stock market’s reaction proved more complicated. While the broader market showed signs of strength with most S&P 500 stocks advancing, heavyweight tech names and UnitedHealth Group weighed heavily on the major indexes.
The market’s mixed performance comes just one day after a stunning rally that saw the Dow surge more than 700 points – its best single-session gain since early November. That move was fueled by encouraging inflation data that showed consumer prices rising at a slower pace than economists had predicted.
Today’s session revealed the growing disconnect between mega-cap tech stocks and the rest of the market. While the Magnificent Seven struggled, with Tesla falling 3.7% and Apple dropping 2.9%, the Invesco S&P 500 Equal Weight ETF – a proxy for market breadth – climbed 0.6%.
Meanwhile, the precious metals market seized on Waller’s comments, with gold futures surging to $2,745.10, just 2% shy of their all-time settlement high. The yellow metal has emerged as a preferred hedge against both inflation and economic uncertainty.
Adding another layer of complexity to the market narrative, this morning’s economic data painted a mixed picture. Retail sales rose 0.4% in December, slightly below expectations of 0.5%, while weekly jobless claims jumped to 217,000 – higher than the 210,000 economists had forecast.
The soft economic data could reinforce the Fed’s ability to cut rates sooner rather than later, but it also raises questions about the strength of the U.S. consumer and labor market heading into 2025.
UnitedHealth Group epitomized the market’s challenging day, as shares plunged following disappointing quarterly results. The healthcare giant’s decline alone subtracted over 150 points from the Dow, highlighting how individual stock movements can mask underlying market strength.
Sector performance told its own story, with utilities leading the way higher while healthcare and consumer discretionary stocks lagged. Six of the eleven major S&P 500 sectors finished in positive territory, suggesting broader market resilience despite headline index weakness.
The day’s action left many traders wondering whether Waller’s comments mark a genuine pivot in Fed policy or simply reflect the central bank’s growing confidence in the inflation battle. After all, it was just months ago that Fed officials were uniformly pushing back against rate cut expectations.
The tug-of-war between bulls and bears looks set to continue as earnings season kicks into high gear. With inflation showing signs of cooling and the Fed potentially shifting its stance, portfolio managers face difficult decisions about positioning for what could be a very different rate environment in the months ahead.
Given today’s conflicting signals, investors would be wise to watch for confirmation of Waller’s dovish tone from other Fed officials in the coming weeks. Any divergence could spark fresh volatility in both stocks and bonds.
The market’s reaction to UnitedHealth’s earnings miss also serves as a reminder that company fundamentals still matter, even in an environment dominated by macro concerns. As more companies report results in the weeks ahead, their guidance about 2025 business conditions could prove crucial in determining the market’s next major move.
With the S&P 500 sitting near record highs and Treasury yields well off their peaks, the stage is set for what could be a pivotal period in financial markets. The question now is whether improving inflation data and a more dovish Fed will be enough to overcome concerns about economic growth and corporate profits.
For now, it seems the market remains caught between competing narratives – the promise of lower rates versus the reality of a slowing economy. Which story ultimately prevails could determine whether stocks can build on yesterday’s impressive gains or succumb to renewed selling pressure.
