The U.S. stock market experienced a severe selloff Wednesday after Federal Reserve Chair Jerome Powell‘s comments triggered what CNBC’s Jim Cramer described as “incredible panic” in the markets.
What Happened: “People throwing away good and bad. Typical index fund behavior,” Cramer wrote on X, specifically highlighting concerns about small-cap stocks’ performance. “And all of those people who loved the Small Caps (the Russell 2000?) now what??”
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The market reaction came after Powell announced a 25-basis-point rate cut to 4.25%-4.5%, while signaling only two potential rate cuts in 2025 – fewer than the four projected in September.
The selloff was broad and deep, with the Dow Jones Industrial Average, as tracked by the SPDR Dow Jones Industrial Average ETF DIA plunging 2.48% to close at 42,326, marking its worst one-day drop since September 2022.
The S&P 500 index — tracked by the SPDR S&P 500 ETF Trust SPY fell 2.9% to 5,872, while the tech-heavy Nasdaq 100, tracked by Invesco QQQ Trust QQQ, dropped 3.6% to 21,209.
Small-cap stocks, as measured by the iShares Russell 2000 ETF IWM, bore the brunt of the selling pressure, tumbling 4.4% to 2,231, completely erasing their post-election gains.
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Why It Matters: The “Magnificent Seven” tech stocks collectively lost over $600 billion in market value, with Tesla Inc. TSLA leading the decline, down 8.2%.
Powell described the Fed’s approach as entering “a new phase” for monetary policy, emphasizing a more cautious stance on future rate cuts. The Fed now projects inflation to reach 2.5% in 2025, up from its previous estimate of 2.1%.
The market anxiety was reflected in the CBOE Volatility Index, which surged 58% to 25, while the U.S. dollar climbed to two-year highs. Bitcoin BTC/USD fell 5.32%, trading just below $100,000, and gold dropped 2.1% to $2,580 per ounce.
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