Stock Market Crash: The Indian equity markets saw a sharp slide in early trading on December 19. The Nifty 50 fell as much as 1.4% to an intra-day low of 23,870.30 while the Sensex dropped 1,162.20 points or 1.4% to an intra-day low of 79,020, bouncing back from the key support level. The US Fed spooked sentiment by signalling that it aims to cut rates at a slower pace next year.

“When valuations are high the market needs only a trigger to correct sharply. This trigger was provided by the Fed’s guidance of fewer rate cuts in 2025, which went against market expectations. Even though the rate cut of 25 bp was in tune with the market’s expectation, the indication of only two cuts of 25 bp each in 2025 against market expectation of three or even four cuts spooked the market resulting in a sharp sell-off in Wall Street. The Fed chief’s comments regarding the economy and the labour market are, in fact, positive, suggesting a resilient US economy. But always the market gets spooked when the reality falls short of expectations,” said  V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Here are 4 reasons why markets are falling today: 

1. Jerome Powell spooks sentiment

The US Federal Reserve cut its key interest rate on Wednesday by 25 bps— the third cut this year in continuation— but also signalled that it expects to reduce rates more slowly next year than it previously envisioned, largely because of still-elevated inflation. Moreover speaking on rate cuts next year, Powell said,  “But as for additional cuts, we’re going to be looking for further progress on inflation as well as continued strength in the labour market. And as long as the economy and the labour market are solid, we can be cautious as we consider further cuts.”
He went on to add that the Fed is not looking at any law change to own bitcoin. He explained that “The Federal Reserve Act says what we can own, and we’re not looking for a law change. That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed.”

Also, the rupee dropped 12 paise to an all-time low of 85.06 against the US dollar in early trade on Thursday. “The Dollar Index, which measures the strength of the US dollar against a basket of major currencies, surged to a two-year high, reflecting the market’s reaction to the Fed’s stance. This stronger dollar, combined with Powell’s hawkish rhetoric, suggests that the Fed is prioritizing inflation control over economic growth, which could lead to tighter financial conditions globally,” said Palka Arora Chopra, Director at Master Capital Services.

2. Asian markets under pressure

Asia-Pacific markets were trading lower as investors tracked the overnight fall in the US markets as the US Fed cut interest rates for the third consecutive meeting and sees fewer rate cuts ahead. Further, investors are looking at the Bank of Japan’s decision on interest rates, expected to leave the rate unchanged at 0.25%. Japan’s Nikkei 225 was trading 0.92% lower at 38,717. The Korean index Kospi slipped 1.87% to trade at 2,438. The Asia Dow was trading 0.95% lower at 3,687.82. However, the benchmark Chinese index, Shanghai Composite was flat at 3,382. 

3. US markets closed in red

US indices tumbled during Wednesday’s trade after the US Fed’s interest rate cut outlook was disappointing. The 30-stock Dow Jones Industrial Average lost 1,123 points or 2.58% to close at 42,326.87, the worst losing streak since an 11-day slide in 1974. The S&P 500 closed the session 2.95% lower at 5,872. The technology-heavy Nasdaq Composite fell 3.56% to close the session at 19,392.69. 

4. FII selling continues to worry

Foreign institutional investors (FII) were the net sellers of shares net worth Rs 1,316.81 crore on December 18 according to the provisional data available on the NSE. Though they are still net buyers for December so far, they have been sellers this week so far. This yea-end repositioning of assets is worrying investors.