Stocks Take Back Lost Ground ahead of Fed Meeting
After taking a beating on Monday and early Tuesday, the stock market closed high last night and could be bullish Wednesday morning as trading begins.
A potentially huge bit of AI news caused tech stocks to plummet on Tuesday as the company DeepSeek revealed potential for much cheaper artificial intelligence methods. The market was back on its feet Tuesday evening, with key stocks regaining much of their lost ground.
Nvidia (NVDA) was one of the big losers when the news broke, falling by 13% in just a few hours. The stock is up by nearly 9% today, though and is set to climb even higher. Damage has been done, however, and we could see Nvidia suffer over the long term if the DeepSeek news turns out to be valid.
All three major stock indices were up Tuesday evening, with the Nasdaq Composite index gaining just over 2%. The Dow Jones climbed just 0.31%, since it was already high and mostly unaffected by the AI news. The S&P 500 added 0.92% by the end of Tuesday and could climb much higher as markets open on Wednesday morning.
Fed Meeting Could Move Market
The first Federal reserve meeting in the new presidential administration is taking place on Wednesday, and it will be an important one. President Donald Trump and Fed Chairman Jerome Powell butted heads during the last time Trump was in office. Trump has already fired a few salvos across the bow of the Federal Reserve, promising to put pressure on them to bring down interest rates.
The Fed had already stated before Trump came into office that they would pull back on interest rate cuts in 2025 and that there would be fewer cuts than they had planned in late 2024. We will see if their policy changes at all at this meeting.
While Trump’s election win and him taking the oath of office have been good for the market, the Fed may still be hesitant to lower interest rates just yet. They may be cautious about how the economy will react under Trump and what his approximately 100 executive orders will do to the post-Covid markets. After climbing out of a recession, the United States economy is still in a somewhat fragile state, and the Fed knows they have to be careful about issuing interest rates solely on the basis that those rates are still high.
As long as inflation remains sticky, the Fed will have to be very careful about rate cuts which could cause the inflation rate to harden or to climb higher. At each of the last three meetings, the Fed did cut interest rates, but the consensus among analysts for now is that they will not make any more cuts until the summer.
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