Dow Enters Correction as War Fears Erase Fed Cut Bets
SkimNews Take
A correction alongside rising rate-hike odds inverts the usual dynamic—markets typically slide because Fed easing is too distant, not because tightening is being priced back in.
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- Dow Jones Industrial Average fell 793.47 points (1.73%) to 45,166.64, joining the Nasdaq in correction territory after dropping more than 10% from its February 10 record close, while the Russell 2000 was the first index to confirm a correction last Friday.
- S&P 500 lost 108.31 points (1.67%) to 6,368.85 and the Nasdaq Composite dropped 459.72 points (2.15%) to 20,948.36, completing a fifth consecutive weekly decline — the longest such streak in nearly four years.
- Nvidia slid 2.2% as the biggest weight dragging the S&P 500, while Amazon fell 4% and the S&P 500 software and services index closed at its lowest level since November 6, 2023.
- Carnival slumped 4.3% after cutting its annual adjusted profit forecast, and Norwegian Cruise Line tumbled 6.9%, leading consumer discretionary stocks to a 3.1% drop — the worst-performing of the 11 major S&P sectors.
- Federal Reserve rate-cut expectations collapsed: money markets now price in zero cuts for 2025, down from two expected before the Iran conflict, with roughly a 25% chance of an October rate hike, per CME's FedWatch Tool.
- CBOE Volatility Index (Wall Street's fear gauge) jumped 3.61 points to close at 31.05, its highest level since April 21, while the Nasdaq Composite recorded 355 new 52-week lows against just 25 new highs — a roughly 14-to-1 breadth signal.
- Ken Polcari, partner and chief market strategist at SlateStone Wealth, called the selloff "a big opportunity" but warned a further 15% to 20% drawdown "would not be surprising" before the selling ends.
Why it matters: The Fed-pivot from two expected cuts to a 25% odds of an October hike — driven by oil-price inflation tied to the Iran war — repriced the entire 2025 monetary outlook in a single week, leaving rate-sensitive sectors like cruises and software with no policy cushion. Philadelphia Fed President Anna Paulson acknowledged the war's economic risks but offered no near-term policy guidance, while consumer sentiment slid to a three-month low, meaning the pain could deepen before the Fed has room to act.
