Stock market plunge: Should you be worried? Experts weigh in.
The S&P 500 suffered its worst loss after a Fed meeting since 2001.
Panic convulsed the stock market within minutes late Wednesday after the Federal Reserve announced that it expects fewer interest rate cuts next year.
The Dow Jones Industrial Average dropped about 1,100 points, or 2.5%, marking its 10th consecutive day of losses. The S&P 500 plummeted nearly 3%, which amounted to the largest dip the index has taken following a Fed meeting since 2001, according to data shared with ABC News by Deutsche Bank Research.
A years-long market rally suddenly appeared to wobble, posing a key question: Is this a blip on the path to further gains, or a sign of even worse losses to come?
Experts who spoke to ABC News described the selloff as an omen of tumultuous days ahead, pointing to a potentially prolonged spell of high interest rates as well as uncertainty surrounding the U.S. economy under President-elect Donald Trump.
Despite this uncertainty, experts told ABC News that the economy continues to rest on sound footing, retaining the positive outlook for mid- and long-term gains.
"We're used to the market going straight up for so many months, and there's going to be more volatility from here," Ed Yardeni, the president of market advisory firm Yardeni Research and former chief investment strategist at Deutsche Bank's U.S. equities division, told ABC News.
Still, he added: "The reality is the economy is doing fine, which is bullish."
The stock market indeed appeared to rebound in early trading on Thursday, recovering some of the previous day's losses. The Dow climbed about 250 points, or 0.6%, while the S&P 500 jumped 0.7%. The Nasdaq gained nearly 1%.
The Fed announcement Wednesday afternoon that triggered the alarm on Wall Street included news that the central bank cut interest rates a quarter of a percentage point, but also a fresh forecast anticipating fewer interest rate cuts than expected just a few months ago: only a half a percentage point of rate cuts next year and another half-percent cut in 2026.
Lower interest rates typically stimulate economic activity over the long term, keeping the economy growing and safeguarding the labor market. They also tend to drive up corporate profits and stock prices. In theory, a longer-than-expected period of high interest rates could diminish those returns.
"The market threw a temper tantrum," Ivan Feinseth, a market analyst at Tigress Financial, said in a statement to ABC News.
Investors reacted not only to the scaling back of interest rate cuts but the reasons behind the decision that Fed Chair Jerome Powell offered, experts said.
Powell said stubborn inflation influenced the Fed's expectations, noting that some policymakers also factored in the uncertainty tied to potential policy changes under Trump.
"It's common-sense thinking that when the path is uncertain, you get a little slower," Powell said. "It's not unlike driving on a foggy night or walking around in a dark room full of furniture."
Some economists expect Trump's proposals of heightened tariffs and the mass deportation of undocumented immigrants to raise consumer prices.
"It's not going to be a layup for Trump 2.0," Yardeni said, noting the uncertain fate of a budget bill currently on Capitol Hill that, if passed, would avert a government shutdown. "We can already see the mess with the circus in Washington, D.C."
Even so, three experts who spoke to ABC News described the recent drawdown of stock prices as an investor opportunity, and also highlighted the abiding strength of the U.S. economy.
“As we have hand-held investors the last few years on this Fed path, this sell-off is just another buying opportunity,” Dan Ives, a managing director of equity research at the investment firm Wedbush, who focuses on the tech industry, told ABC News in a statement.
Overall, indicators show that the economy is growing at a solid pace, while the unemployment rate remains historically low.
"I feel very good about where the economy is," Powell said on Wednesday.
Bret Kenwell, a U.S. investment analyst at eToro, told ABC News that the stock market outlook remains positive due to robust corporate earnings and resilient economic performance.
"While the market may be vulnerable to short-term weakness, the bull market's long-term fundamental catalysts remain in place," Kenwell said.