Wall Road Lunch: Fed Cuts Charges (US10Y)

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The following is an abridged transcript:

“You’re a mean one, Chairman Powell.”

Federal Reserve Chief Jay Powell and the rest of the FOMC played the Grinch to a market cruising into the Santa Claus Rally period next week.

The Fed cut rates by a quarter point to 4.25%-4.50%. That was a certainty before the decision (in fact the odds priced in a slight chance of a half-point cut right before the announcement).

But while traders got what they expected with the cut (think a pair of nice socks under the tree) they didn’t get the official Red Ryder carbon action 200 shot Range model air rifle with a compass in the stock, and this thing which tells time (or any indication that jump in inflation this past fall was a blip).

This was definitely a hawkish rate cut. And the markets didn’t like it, with stocks tumbling and rates jumping.

Cleveland Fed President Beth Hammack was the lone voting dissenter, but of the 19 Fed members who provide forecasts for the Summary of Economic Projections, another three thought staying steady today was the right move.

And speaking of the dot plot, the Fed now sees two quarter point cuts in 2025, down from four at the last meeting (technically three as the last meeting included the potential for a December cut that materialized). At the same time, expectations for inflation next year rose, with end-’25 headline PCE up to 2.5% from 2.1% and core PCE up to 2.5% from 2.2%.

Eugenio Aleman, chief economist at Raymond James says it “seems that Fed officials are following the path they followed at the beginning of last year when inflation was higher than expected and they decided to postpone the start of the rate cut cycle.”

Those hoping Powell would offer some balance at the press conference, as he often does, were instead greeted by a Chairman from just north of Whoville whose shoes were perhaps just too tight.

He said today’s decision was a “closer call” than November, which flew in the face of the market pricing in 100% chance of cutting, and getting to the inflation target of 2% might take “another year or two.”

“We’ve had a year-end projection for inflation and it’s kind of fallen apart as we’ve approached the end of the year,” Powell said, adding that the single biggest factor in Fed voters’ thinking “is inflation has once-again underperformed relative to expectations.”

The market has now moved to pricing in two cuts in eight meeting in 2025 and a one-in-five chance that the Fed does nothing at all.

David Russell, global head of market strategy at TradeStation summed it up: “Good-bye punch bowl. No Christmas cheer from the Fed. Policymakers see higher inflation and lower unemployment in 2025 . There is simply no reason to be dovish given that outlook. The easy lifting is done now that rates are no longer clearly restrictive. It’s a logical time to pause.”

And the markets could certainly use a pause that refreshes. Stocks really took it on the chin, plunging at the Fed announcement and falling into the close without late buying we’ve seen after other Powell appearances.

The Nasdaq (COMP.IND) took the brunt of it, falling more than 3.5%, its worst day since late july. It was up more than 5% for the month, though, and is still up 2.5% for December with Santa Rally time still to come.

The S&P (SP500) fell 3%, its worst performance since early August, and the beleaguered Dow (DJI) shed another 1,000 points, off 2.6%. It’s now down 5.75% for the month.

,Daniel Jones, investing group leader of Crude Value Insights, says it “was a bloody and brutal day for the stock market … The picture was so brutal that we set a new record. This is the first time since 1974 that the Dow Jones Industrial Average has fallen 10 straight days in a row.”

Bond prices also tumbled, sending Treasury yields soaring. The 10-year yield (US10Y) is back close to 4.5%. And the dollar index (DXY) rose to its highest level in two years.

Robin Brooks, senior fellow at the Brookings Institute, said: “Today’s hawkish Fed meeting and resulting rise in the dollar are a reminder that the rise in USD since the election isn’t about tariffs, but about US cyclical divergence above its G10 peers.”

“That means tariffs – if they come – will spark a major 2nd leg of USD strength.”

Among active stocks today, General Mills (GIS) issued results that beat on the top and bottom lines, but also lowered profit outlook.

General Mills now sees adjusted EPS down 3% to down 1% for FY25 on a constant currency basis, compared to prior guidance for a range of down 1% to up 1%. Organic net sales are still expected to range between flat and up 1%. GIS said it is now targeting the lower end of the range due to increased promotional investment.

Consulting firm TrendForce says Nvidia’s (NVDA) new GB200 rack-mounted AI and HPC servers are expected to reach mass production and peak shipments during the second and third quarters of 2025

The production of Blackwell GPU chips is progressing largely as expected, with only limited shipments during the fourth quarter of calendar year 2024 before production ramps during the first quarter of 2025 and beyond, TrendForce said.

Jabil (JBL) reported stronger-than-expected quarterly results and raised its outlook for fiscal 2025, led by strength in cloud computing and the data center.

The electronic circuit manufacturing company expects to earn between $1.60 and $2 per share in fiscal Q2, with revenue between $6.1 and $6.7 billion. Analysts were expecting $1.79 per share on $6.27 billion in revenue. For 2025 it now sees net revenue at $27.3 billion, up from a prior forecast of $27 billion.

In other news of note, Merck (MRK) joins the weight-loss drug race.

Merck and China’s Hansoh Pharma (OTCPK:HNSPF) announced a global licensing deal to develop HS-10535, an oral GLP-1 receptor agonist targeted at weight loss and other cardio metabolic conditions.

Weight loss drug development is currently dominated by Novo Nordisk (NVO) and Eli Lilly (LLY), with the likes of Pfizer (PFE), Amgen (AMGN), and AstraZeneca (AZN) also in the race.

An experimental therapy undergoing preclinical studies, HS-10535 targets GLP-1 receptors similar to Novo and Lilly’s injectable weight loss drugs Wegovy and Zepbound.

And in the Wall Street Research Corner, it’s more of the crystal ball for 2025.

Roth MKM is out with their top stock picks for next year. They surfaced 25 names with upside potential ranging from about 9% to almost 183% through the end of next year.

Among the names are:

Turning Point Brands (TPB) – Price target: 70.00 Groupon (GRPN) – Price target: 21.00 Take-Two Interactive Software (TTWO) – Price target: 208.00 Uber (UBER) – Price target: 90.00 First Solar (FSLR) – Price target: 280.00 Snap-On (SNA) – Price target: 393.00 Uranium Energy (UEC) – Price target: 10.50



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