Feb 1, 2024 - Economy

Why stocks just had their worst day of the year

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

It was the S&P 500's worst day of January — and the year.

What happened: Federal Reserve chair Jerome Powell doused market hopes that the Fed could cut rates in a couple of months.

  • His comments Wednesday afternoon took the wind out of the sails of the S&P, which had already opened down. It dropped even further, ending with a loss of 1.6%.
  • It was the market's worst day since September.

State of play: The Fed left interest rates unchanged, and at the post-decision news conference, the policymaker was asked about the prospect of a rate cut in the near term.

  • "I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting," he responded.
  • As recently as a month ago, the Fed funds futures market was pricing in odds of more than 70% that the Fed would cut in March.

Yes, but: The broad stock market index was still up for the month, rising 1.6%. The Nasdaq was up about 1%.

What to watch: The Russell 2000 index of small-cap stocks. It is viewed as being a barometer of sentiment on the domestic economy rather than the more globally sensitive large-cap indexes, which aren't as reliant on the U.S. economy.

  • The Russell was down 3.7% in January despite very decent economic data releases and seems worth keeping an eye on.
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