Stock market plummets as traders prepare for Federal Reserve decision, marking end of turbulent month in 2024

US Federal Reserve Board Chairman Jerome Powell’s remarks at the latest FOMC meeting sent shockwaves through the stock market on Tuesday, with the S&P 500 index dropping over 1% as investors reevaluated their rate cut expectations.

The sell-off was triggered by the release of quarterly labor cost data, which showed a 1.2% increase in the Employee Cost Index, surpassing the 1% consensus forecast. This unexpected rise in labor costs added to concerns about a hot economy and persistent inflation, making it more challenging for the Fed to justify further interest rate cuts.

As a result, futures markets now anticipate only one rate cut in December, a significant shift from previous expectations. Investors are eagerly awaiting the Fed’s policy decision and Chairman Powell’s comments following the conclusion of the FOMC meeting on Wednesday.

“The policy statement and Chair Powell’s comments in the press conference will reiterate the Fed’s resolve to get inflation back to their 2% target,” said Bill Adams, chief economist for Comerica Bank. “A rate cut looks off the table before September, given recent data demonstrating a broad-based increase in prices of services, houses, and labor costs in early 2024.”

The stock market decline in April has erased gains from the previous five months, marking the first month of 2024 to end in the red. Companies like McDonald’s, whose earnings report missed estimates, and Amazon, set to release its quarterly results, experienced notable declines in their stock prices.

Additionally, ceasefire talks between Israel and Hamas contributed to a 2.6% drop in Brent crude oil prices. Overall, the market volatility reflects the uncertainty surrounding the Fed’s monetary policy decisions and the broader economic landscape.