U.S. stocks declined over the week, with small-cap stocks hit hardest, despite a Friday rebound that eased losses. Investor concerns grew after the Federal Reserve cut interest rates by 0.25 percentage points but signaled caution about future cuts. Fed Chair Jerome Powell indicated only two rate cuts are expected in 2025, down from four, and raised the inflation forecast to 2.5%. Political uncertainty over a potential government shutdown added pressure. Strong economic data provided some support: Q3 GDP grew 3.1%, November retail sales rose 0.7%, and jobless claims declined. Core PCE inflation aligned with expectations at 2.8%, helping Friday’s rebound. In bonds, Treasury yields rose on reduced rate-cut expectations, municipal bond activity slowed, and high-yield bonds remained steady as market activity slowed ahead of the holidays.
European stocks had their worst week in over three months, with the STOXX Europe 600 index dropping 2.76%. Major markets also saw declines: Germany’s DAX fell 2.55%, Italy’s FTSE MIB dropped 3.22%, France’s CAC 40 lost 1.82%, and the UK’s FTSE 100 was down 2.60%. Investors were worried about President-elect Trump’s threats of tariffs and uncertainty around future interest rate changes. The Bank of England kept interest rates steady at 4.75%, although some officials argued for a rate cut due to weak demand. Inflation rose to 2.6%, while wage growth hit 5.2%. In the Eurozone, business activity shrank slightly but remained relatively stable. Political uncertainty also increased as German Chancellor Olaf Scholz lost a confidence vote, triggering new elections set for February.
