Fed cuts interest rates by a quarter of a point
The Federal Reserve cut interest rates by a quarter of a percentage point for the third time in a row in an effort to lower borrowing costs for consumers.
- As a practical matter, the market is currently pricing in the Fed being highly unlikely to cut rates further in January unless labor market conditions deteriorate significantly.
- Sentiment toward artificial intelligence stocks cooled as concerns about near-term cash flow pressures increased following Oracle's profit.
- The takeover race for Warner Bros. Discovery has taken an unexpected turn. Paramount Skydance has launched a hostile tender offer of $30 per share.
The Federal Reserve lowered its federal funds target range by 25 basis points to 3.50% to 3.75%, marking the third straight year of long-awaited interest rate cuts, following a deeply divided policy meeting in which three officials expressed opposing views.
Gov. Stephen Milan supported further rate cuts, but Kansas City Fed President Jeffrey Schmidt and Chicago Fed President Austan Goolsby voted to keep rates on hold.
Fed Chair Jerome Powell signaled that the easing cycle may now be halted and emphasized the need to assess how the economy would respond to cumulative interest rate cuts. As a practical matter, the market is currently pricing in a very low chance of another rate cut in January unless labor market conditions deteriorate significantly.
US stocks responded with notable sector rotation. Investors moved into interest rate-sensitive areas of the market while reducing exposure to high-valuation tech stocks. The Dow Jones Industrial Average, which has limited exposure to tech stocks, and the small-cap Russell 2000 both rose to record highs.
Sentiment toward artificial intelligence stocks cooled as concerns about near-term cash flow pressures increased following Oracle's profit. Oracle stock fell about 12% this week, marking its worst weekly performance since March 2018, as investors focused on increased capital spending and potential higher debt burdens related to AI data centers.
Broadcom, the semiconductor giant, fell about 10% on Friday, Dec. 12, despite beating profit estimates and surging nearly 80% since the beginning of the year.
The takeover race for Warner Bros. Discovery has taken an unexpected turn. Paramount Skydance has launched a hostile tender offer of $30 per share, higher than Netflix's agreed-upon bid of $27 per share. Paramount's move bypasses Warner Bros. Discovery's board of directors and goes directly to shareholders, raising the stakes in what is shaping up to be one of the most significant consolidation battles in global media.
Meanwhile, the rally in precious metals continued, defying gravity. Silver made headlines last week, surging to a record high of nearly $64 an ounce, up nearly 120% year-to-date and marking its best annual performance since 1979. Shares of gold and silver miners outperformed all major industry groups on Wall Street.
In the auto sector, Michigan-based stocks continued their strong upward momentum. General Motors has soared to a new high of nearly $81 a share, extending its gain by about 50% over the past two months. Ford also ended the week up about 6% to about $13.80.
Benzinga is a financial news and data company headquartered in Detroit.
