The S&P/ASX 200 Index (ASX: XJO) is down 1.7% in late morning trade on Thursday, currently sitting at 8,168.5 points.
Barring a dramatic turn for the better in afternoon trade, today will mark the seventh day the benchmark finishes in the red out of the past eight trading days. So, if that Santa rally is going to occur, those investment reindeer best get moving.
Despite the recent string of losses, it's worth remembering that the S&P/ASX 200 Gross Total Return Index (ASX: XJT), which includes all cash dividends reinvested on the ex-dividend date, remains up 13.1% since this time last year.
As for how some of Australia's biggest listed companies are faring during today's broader market sell-off:
- Commonwealth Bank of Australia (ASX: CBA) shares are down 2.2% at $156.20
- The BHP Group Ltd (ASX: BHP) share price is down 1.3% at $39.76
- Shares in ASX 200 biotech giant CSL Ltd (ASX: CSL) are down 0.9% at $279.66 apiece
Which brings us back to our headline question.
Why is the ASX 200 taking a dive today?
The ASX 200 is catching some unwanted headwinds blowing out of the United States, courtesy of the US Federal Reserve.
Yesterday (overnight Aussie time), the Fed cut the official US interest rate by 0.25%. This is the third consecutive rate cut, and the federal funds rate now ranges from 4.25% to 4.50%.
Following on the rate announcement, the S&P 500 Index (SP: .INX) took a sharp turn lower to close down 3.0%. Tech investors were also selling, sending the Nasdaq Composite Index (NASDAQ: .IXIC) to close down 3.6%.
So, why are US stocks and the ASX 200 coming under pressure after an interest rate cut from the world's most influential central bank?
Well, largely that's because yesterday's rate cut was already priced into the markets. As for the outlook for US interest rates in 2025, the Fed indicated there may be only two rate cuts rather than the three that markets expected.
Atop concerns that US inflation is proving sticky above the Fed's 2% target level, the board also has an eye on the potential impacts of new tariffs that incoming President Donald Trump has indicated he may roll out.
Commenting on the Fed's decision yesterday, chairman Jerome Powell said:
With today's action, we have lowered our policy rate by a full percentage point from its peak and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate.
What are the market experts saying?
Responding to the Fed's decision that's clearly spooked ASX 200 investors today, Greg Boland, chief strategy officer at Tiger Brokers Australia, said:
Fed officials now see greater uncertainty about next year now than in September due to the US election and the Fed officials want greater progress on bringing inflation down. Officials are in a wait and see – take our time mode given greater inflation threats from tariffs and tax changes are uncertain.
Goldman Sachs Asset Management's Whitney Watson added (quoted by Bloomberg), "While the Fed opted to round out the year with a third consecutive cut, its New Year's resolution appears to be for a more gradual pace of easing".
And Chris Zaccarelli, chief investment officer at Northlight Asset Management, said:
The Fed tried to give the market what it wanted, but the gift was not well received. The market is forward-looking and ignored the 25-basis-point cut today and instead focused on the lack of cuts for next year.
Only two cuts were pencilled in, which is much less than the market was expecting and clearly investors are not pleased with the projected future path of rates.
If interest rates in the US do stay higher for longer than expected, ASX 200 investors will do well to hunt for stocks that can perform well amid a strong US dollar in 2025.
