By Daniel Lo Surdo
The sharemarket continued to fall on Friday, scotching hopes of a Santa rally one day after close to $50 billion was wiped off the local bourse, as markets reacted to the prospect of fewer US interest rate cuts in 2025 than previously expected.
The ASX/S&P 200 fell 101.2 points, or 1.2 per cent, to 8067 points to mark a 2.8 per cent decline over the trading week. Shares plummeted and the Australian dollar remained near a two-year low. Eight of the 11 industry sectors fell, with financial services and consumer stocks among the worst performers.
The so-called Santa rally normally kicked in around mid-December, but it hasn’t happened this year.Credit: Mayu Kanamori
The drop followed Thursday’s sharp decline, sparked by the Federal Reserve’s prediction it would deliver fewer rate cuts in 2025 than expected. Amid the sharp slide in markets, the ASX on Friday afternoon said it had informed regulators of a technical issue that was delaying the settlement of trades.
IG market analyst Tony Sycamore said the Fed’s prediction “shattered the illusion” of those investors who held dovish expectations for the US central bank.
“We always knew the Fed was data-dependent, and the data has been resilient,” Sycamore said. “This has been a frothy period after the US election with stocks and Bitcoin … I’m surprised by the reaction.”
The Australian dollar remained weak after losses on Thursday and was valued at 62.25 US cents at 4.40pm AEDT.
Shane Oliver, chief economist at AMP, noted that the sharemarket – which hit a record high earlier this month – was “already vulnerable” ahead of the Fed’s forecast, saying equities were “overvalued, a bit over loved and technically overbought”.
Oliver said the so-called Santa rally – a period of rising stock prices in the lead-up to Christmas – normally kicked in around mid-December. But he said this appeared not to have happened this year, or it may have come early, leaving markets “overbought.”
“So far Santa looks to have been absent – or may have come early in November … now giving way to a focus on uncertainties around the impact of Trump’s policies and uncertainty about the Fed and RBA,” Oliver said.
Commonwealth Bank - the largest stock on the ASX - fell by 3.7 per cent, and was joined in the red by ANZ (down 2.3 per cent), NAB (down 2.2 per cent) and Westpac (down 1.2 per cent). Macquarie (down 2.3 per cent) also lost, while insurers Suncorp (down 1.8 per cent) and QBE (down 1 per cent) retreated.
Mining giants BHP (down 0.2 per cent) and Rio Tinto (down 0.6 per cent) slid, while Fortescue gained 2 per cent. Bellevue Gold (down 5.6 per cent), Newmont (down 1.6 per cent) and Northern Star (down 0.5 per cent) continued a downward trajectory after gold prices tumbled to their lowest in a month earlier this week.
Trading on Friday afternoon was hampered by a technical issue delaying the settlement of trades.
“We are continuing to receive new trades from market operators and the clearing process is operating as normal,” an ASX spokesperson said. “Every effort is being made to resolve the issue by the end of today.”
Sycamore didn’t expect this week’s downturn until January and didn’t rule out the possibility of a rally in the first few weeks of the new year.
“It’s been a funny old week, and it can happen around this time of the year,” Sycamore said. “It has caught people off guard, but it has happened previously.”
Kmart and Bunnings owner Wesfarmers (down 5 per cent) retreated after telling shareholders it had agreed to sell its Coregas industrial gas manufacturer and supplier for $770 million. It will be sold to a subsidiary of Nippon Sanso Holdings, which is listed on the Tokyo stock exchange and headquartered in Japan.
Aristocrat Leisure (down 0.5 per cent), Harvey Norman (down 1.1 per cent), JB Hi-Fi (down 2.4 per cent) and Breville (down 0.6 per cent) were among the other consumer discretionary shares in the red.
Gains from Woodside (up 2 per cent), Santos (up 0.6 per cent) and Ampol (up 1.6 per cent) spurred the energy sector to a 1.2 per cent rise on Friday. It joined utilities as the only other industry sector with significant gains, amid share price rises for Origin Energy (up 1.4 per cent), Meridian (up 3.1 per cent), Mercury New Zealand (up 4.9 per cent) and AGL (up 2.2 per cent).
In the US, the S&P 500 rose 0.2 per cent in afternoon trading (US time) a day after tumbling 2.9 per cent following the Federal Reserve’s prediction. The Dow Jones Industrial Average was up 96 points, or 0.2 per cent, as of 1.03pm Eastern time, following Wednesday’s drop of more than 1100 points. The Nasdaq composite rose 0.2 per cent.
Indexes are still near their records, and the S&P 500 is still on track for one of its best years of the millennium. Wednesday’s drop just took some of the enthusiasm out of the market, which critics had already warned was overly buoyant and would need everything to go correctly to justify its high prices.
Traders are now expecting the Federal Reserve to deliver just one or maybe two cuts to interest rates next year, according to data from CME Group. Some are even betting on none. A month ago, the majority saw at least two cuts in 2025 as a safe bet.
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