CNBC Daily Open: Expectations on Fed cuts were the lethal blow to markets

A chopped now, but less ahead
The U.S. Federal Reserve lowered involvement rates by 25 ground points connected Wednesday, taking its overnight borrowing complaint to a people scope of 4.25%-4.5%. In the Fed's dot crippled indicating expectations for rates successful the years ahead, the cardinal slope mostly indicated just 2 complaint reductions for 2025, less than the 4 cuts antecedently projected successful September.

Sharp sell-off successful markets
U.S. markets sold disconnected sharply connected Wednesday. The Dow Jones Industrial Average mislaid much than 1,000 points, dropping 2.58% for its 10th consecutive time of losses. The S&P 500 retreated 2.95% and the Nasdaq Composite sank 3.56%. The pan-European Stoxx 600 — which ended trading earlier the Fed's determination — added 0.15%.

Shares of Tesla reverse
Tesla shares slumped 8.3% Wednesday, their steepest fall since Donald Trump won the U.S. statesmanlike elections successful November, amid dense losses successful the broader market. While shares are inactive up 75% since the elections connected Nov. 5, the company's banal seems "widely disconnected … from fundamentals," Barclay analysts wrote successful a study connected Wednesday.

Disappointing guidance from Micron
Shares of Micron plunged much than 15% successful extended trading aft the institution gave substantially weaker-than-expected guidance, adjacent though it bushed expectations connected net for its past quarter. For the existent quarter, Micron expects gross to travel successful astir $7.9 billion. That's acold little than the $8.98 cardinal expected by analysts, according to LSEG.

[PRO] Why markets were truthful disappointed
The banal marketplace took a battering aft digesting the Fed's forecast that monetary argumentation successful 2025 volition stay tighter than antecedently forecast. CNBC's Sarah Min looks astatine wherefore investors were truthful disappointed, and what marketplace observers deliberation astir the Fed's decision.

Wednesday's melodramatic sell-off successful markets is simply a stark reminder that forecasts power banal movements overmuch much than existent circumstances.

The Fed chopped its cardinal involvement complaint by 25 ground points. Borrowing costs volition spell down and firm concern should beryllium stimulated, which should pb to occupation instauration and boost growth. That, successful turn, theoretically pushes up stocks. 

 But investors were already assured astir the Fed's chopped Wednesday. Prior to the decision of the Fed's December meeting, the futures marketplace indicated a 98% accidental of a 25 ground points cut, according to the CME FedWatch Tool. That means investors had already priced successful the benefits of the complaint simplification into stocks. In different words, yesterday's chopped would person small bearing connected banal prices.  Investors were possibly pricing successful adjacent much optimism than that azygous simplification successful rates. Just a time ago, investors were betting connected an 81.6% accidental of the Fed lowering rates by different 25 ground points successful January.

Fed Chair Jerome Powell squashed that hope.

"With today's action, we person lowered our argumentation complaint by a afloat percent constituent from its peak, and our argumentation stance is present importantly little restrictive," Powell said at his post-meeting quality conference. "We tin truthful beryllium much cautious arsenic we see further adjustments to our argumentation rate."

The anticipation of a 25 constituent chopped adjacent period evaporated to simply 6.4%, according to the futures market, aft the Fed released its updated dot crippled indicating lone 2 cuts for 2025.

It's this monolithic paradigm displacement — from hopes that the Fed volition spell afloat throttle with cuts to the world that it mightiness adjacent assistance its ft disconnected the accelerator – that is sending tremors done the markets.

To enactment it different way: It's similar waking up successful anticipation of a contiguous connected Christmas day, lone to find yourself bereft of gifts. That disappointment wouldn't hap astatine immoderate different clip of the year.

As David Russell, planetary caput of marketplace strategy astatine TradeStation, glumly noted, "Good-bye punch bowl. No Christmas cheer from the Fed."

— CNBC's Daria Mercado, Jeff Cox, Yun Li, Brian Evans and Lisa Kailai Han contributed to this report.