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Wall Street tumbles to sharply lower close as abrupt sell-off snaps rally
NEW YORK, Dec 20 (Reuters) - U.S. stocks closed lower on Wednesday after an abrupt mid-afternoon nosedive ended Wall Street's impressive rally, which had been driven by falling interest rates and the Federal Reserve's dovish turn.
All three major U.S. stock indexes veered lower late in the session to end 1.3% to 1.5% below Tuesday's close.
Stocks were "near all time highs, they hit resistance," said Jay Hatfield, portfolio manager at InfraCap in New York, noting the downturn was "surprisingly vociferous, things went from hot to cold real fast."
"It\u2019s surprising how aggressive the sell-off is, but it makes sense considering how far we\u2019ve come," Hatfield added.
FedEx (FDX.N), opens new tab shares tumbled 12.1% after the package delivery company missed quarterly profit estimates and cut its full-year revenue forecast as it battles United Parcel Service (UPS.N), opens new tab in what is shaping up to be a weak holiday season. UPS dropped 2.9%.
Some traders said the market selloff could have been aggravated by large purchases of near-term put options on the S&P 500, including put contracts that would guard against a drop below the 4,755 level on the index by the end of the session.
Put options convey the right to sell shares at a fixed price in the future and at times options-linked hedging activity can heighten volatility.
In extended trade, Micron Technology (MU.O), opens new tab jumped 4.4% after the memory chipmaker forecast quarterly revenue above estimates.
During the session, the S&P 500 got within 0.5% of its all-time closing high. Reaching a new closing high would have confirmed the benchmark index had been in a bull market since closing at the bear market floor in October 2022.
The index is now more than 2.0% below its record closing high.
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"We've had this aggressive rally in December and investor sentiment is high, it went from bearish to bullish in almost record time," said Thomas Martin, Senior Portfolio Manager at GLOBALT in Atlanta. "So the markets are asking 'now what?'"
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[1/2]A Christmas tree is seen outside of the New York Stock Exchange (NYSE) in New York City, U.S., December 15, 2023. REUTERS/Brendan McDermid/File Photo Purchase Licensing Rights, opens new tab
Last week, the Federal Reserve signaled it had reached the end of its tightening cycle and opened the door to rate cuts in 2024.
Chicago Fed President Austan Goolsbee late Tuesday reiterated that the rate at which inflation cools to the Fed's annual 2% target will drive policy on rate reduction.
Financial markets were pricing in a 71.1% likelihood of that first cut arriving as soon as March, according to CME's FedWatch tool.
On the economic front, bigger than expected jump in U.S. consumer confidence and a surprise increase in existing home sales helped turn the major indexes green.
The Commerce Department is expected to wrap up the week with its third and final take on third-quarter GDP on Thursday, to be followed on Friday by its wide-ranging Personal Consumption Expenditures (PCE) report, which will cover income growth, consumer spending and, crucially, inflation.
The Dow Jones Industrial Average (.DJI), opens new tab fell 475.92 points, or 1.27%, to 37,082, the S&P 500 (.SPX), opens new tab lost 70.02 points, or 1.47%, to 4,698.35 and the Nasdaq Composite (.IXIC), opens new tab dropped 225.28 points, or 1.5%, to 14,777.94.
All 11 major sectors in the S&P 500 closed in the red, with consumer staples (.SPLRCS), opens new tab suffering the steepest percentage decline after packaged food company General Mills (GIS.N), opens new tab cut its sales forecast.
Alphabet gained 1.2% after the company announced it was restructuring Google's ad sales unit.
Management consulting firm Aon (AON.N), opens new tab tumbled 6.0% following its announcement that it would buy privately held insurance broker NFP in a $13.4 billion deal.
Declining issues outnumbered advancing ones on the NYSE by a 2.64-to-1 ratio; on Nasdaq, a 2.26-to-1 ratio favored decliners.
The S&P 500 posted 36 new 52-week highs and 1 new lows; the Nasdaq Composite recorded 210 new highs and 89 new lows.
Volume on U.S. exchanges was 12.84 billion shares, compared with the 12.15 billion average for the full session over the last 20 trading days.
Reporting by Stephen Culp; Additional reporting by Saqib Ahmed in New York, Johann M Cherian and Shristi Achar A in Bengaluru, and by Noel Randewich in Oakland, Calif.; Editing by David Gregorio
Our Standards: The Thomson Reuters Trust Principles., opens new tab
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