Dow Swings Wildly, Closing Sharply Lower in Sudden Turnaround

Stocks in the United States finished down on Wednesday after a sharp mid-afternoon drop stopped Wall Street's remarkable run, which had been fueled by lowering interest rates and the Federal Reserve's dovish tilt.

All three main U.S. market indexes fell late in the session, finishing 1.3% to 1.5% lower than the previous day's closing.

Stocks were "near all-time highs, they hit resistance," says Jay Hatfield, portfolio manager at InfraCap in New York, who noted that the collapse was "surprisingly vociferous, things went from hot to cold real fast."

FedEx shares fell 12.1% after the package delivery firm failed quarterly profit projections and reduced its full-year revenue prediction as it competes with United Parcel Service (UPS.N) during what is expected to be a slow Christmas season. UPS fell 2.9%.

Some traders believe the market selloff was exacerbated by significant purchases of near-term put options on the S&P 500, particularly put contracts that would protect the index from falling below the 4,755 level before the conclusion of the session.

Put options give the right to sell shares at a predetermined price in the future, and options-linked hedging activity can sometimes increase volatility.

Micron Technology rose 4.4% in extended trading after the memory chipmaker forecasted higher-than-expected quarterly sales.

The S&P 500 came within 0.5% of its all-time closing high during the session. A fresh closing high would have verified that the benchmark index has been in a bull market since October 2022, when it closed at the bear market floor.

What Experts Have To Say

The Federal Reserve hinted this week that it had reached the end of its tightening cycle, opening the door to rate decreases in 2024.

Late Tuesday, Chicago Fed President Austan Goolsbee reaffirmed that the rate at which inflation falls to the Fed's annual 2% objective will drive rate-cutting policy.

According to CME's FedWatch program, financial markets were pricing in a 71.1% chance of the first reduction occurring as soon as March.

On the economic front, a larger-than-expected improvement in US consumer confidence and a surprise surge in existing house sales boosted the main indexes.

On Thursday, the Commerce Department is anticipated to release its third and final estimate of third-quarter GDP, which will be followed on Friday by its comprehensive Personal Consumption Expenditures (PCE) report, which will cover income growth, consumer spending, and, most importantly, inflation.

The Dow Jones Industrial Average dropped 475.92 points, or 1.27%, to 37,082, the S&P 500 (.SPX) dropped 70.02 points, or 1.47%, to 4,698.35, and the Nasdaq Composite (.IXIC) sank 225.28 points, or 1.5%, to 14,777.94.

The S&P 500's 11 major sectors all finished in the red, with consumer staples (.SPLRCS) suffering the highest percentage drop after packaged food producer General Mills (GIS.N) reduced its sales estimate.