U.S. stock indexes down in extended profit-taking

The drop contrasts with the surge in all three major Wall Street benchmarks in the final two months of the year

U.S. stock indexes ended the second session of the year down again in extended profit-taking on Wednesday after a strong finish to 2023, with minutes from the Fed's December meeting failing to remove the uncertainty in the markets.

It was the first time the benchmark S&P 500 index has started the year with two successive declines since it started 2015 with a three-session decline.

The drop contrasts with the surge in all three major Wall Street benchmarks in the final two months of the year. The S&P 500 came near its all-time closing high last week as signs of cooling inflation led investors to bet on an aggressive rate-cutting schedule.

However, investors have been cautious so far in 2024, wary of the Fed's expected pivot to rate cuts this year and how quickly these might be implemented. While the Federal Reserve is widely expected to keep rates on hold in January, traders have priced in a 67% possibility of a 25 bps rate cut in March, according to the CMEGroup's FedWatch tool.

The Fed minutes released on Wednesday offered new insight, with policymakers appearing increasingly convinced that inflation was coming under control, with "upside risks" reduced and growing concern about the damage that "overly restrictive" monetary policy might do to the economy.

Little light was shed on when rate cuts might commence though.

The market wanted to hear when and how much the Federal Reserve was going to cut rates, and they did not get that - even if it is not the Fed's job to do that, said Jason Betz, private wealth advisor at Ameriprise Financial.

What we are seeing play out in today's selling maybe is a little bit of frustration with the perceived lack of transparency of the Fed, Betz said.

The S&P 500 shed 38.02 points, or 0.8%, to close at 4,704.81 points, while the Nasdaq Composite shed 173.73 points, or 1.18%, to 14,592.21. The Dow Jones Industrial Average dropped 284.85 points, or 0.76%, to 37,430.19.