According to Zhitong Finance APP, the Christmas holiday is approaching, but many investors find themselves facing daunting challenges. The US stock market rebounded on the last trading day of last week, but this was not enough to overcome the dual blows of the US government shutdown threat and the Federal Reserve's hawkish interest rate cuts. Last week, the Dow Jones Industrial Average ended a ten-day decline, down 2.3%; the NASDAQ Index and the S&amp;P 500 Index fell 1.8% and 2%, respectively.
After a dramatic week, investors will receive less economic data this week. Key data includes the US Conference Board Consumer Confidence Index for December, which will be released on Monday, and the number of initial unemployment claims in the US for the week ending December 21, which will be released on Thursday.
US stocks will have an early market close on Tuesday and will reopen on Thursday. However, the shortened trading hours this week due to the holiday will still give Wall Street an opportunity to interpret the Federal Reserve's expectations for next year's interest rate decisions. Federal Reserve officials now predict that the rate cuts in 2025 will be smaller. In the last few trading days of this year, the Federal Reserve will re-adopt a &#34;higher for longer&#34; policy stance.
Under the influence of the Federal Reserve's hawkish interest rate cuts, investors are questioning whether the &#34;Christmas rally&#34; will be absent. The &#34;Christmas rally&#34; refers to the last five trading days of the year and the first two trading days of the new year. Historically, the US stock market has performed positively during these seven days.
Some analysts believe that the US stock market may face certain pullback and volatility pressures, depending on whether US Treasury yields rise further. Matt Maley, Chief Market Strategist at Miller Tabak, stated that in addition to the uncertainty of the Federal Reserve's interest rate cut path, another factor causing concern for US stocks is the rise in US Treasury yields. Data shows that the benchmark 10-year US Treasury yield reached 4.55% last Monday, the highest level in over six months.
The market is still struggling to cope with the impact of the Federal Reserve's hawkish interest rate cuts. Data released last Friday showed that the Federal Reserve's preferred inflation indicator performed moderately in November, which triggered a rebound in US stocks last Friday.
The recent performance of the Federal Reserve indicates its concern about persistent inflation in the coming months. Some market participants pointed out that threats that could undermine the Federal Reserve's anti-inflation efforts include economic policies proposed by the incoming Trump administration, such as tax cuts, deportation of illegal immigrants, and tariffs.
Some analysts believe that the Federal Reserve's shift in attitude is a preemptive move in a Trump-like manner, rather than simply reacting to what it sees in inflation data. Federal Reserve Chairman Jerome Powell insists that the Federal Reserve will not react to potential policy changes unless those policies are actually implemented and can be properly analyzed.
David Alcaly, Chief Macroeconomic Strategist at Lazard Asset Management, stated, &#34;The market and the Federal Reserve's hawkish stance are less related to the inflation trajectory and more related to the possibility of changes in inflation policies, such as new tariffs.&#34; Chris Rupkey, Chief Economist at FWDBONDS, stated that Trump's spending, tax cuts, and tariff plans could prevent inflation from declining, &#34;and after three consecutive rate cuts, the frequency of rate cuts by the Federal Reserve in its eight meetings in 2025 is expected to be significantly reduced.&#34;
However, many things can happen in terms of policy. Chris Zaccarelli, Chief Investment Officer of Northlight Asset Management, stated, &#34;The only thing we can be sure of is that there will be more uncertainty at the beginning of 2025.&#34;
It is worth mentioning that Bank of Japan Governor Kazuo Ueda will deliver a speech this Wednesday. The Bank of Japan chose to remain steady last week and expressed a cautious attitude towards interest rate hikes. Ueda stated at a press conference following the Bank of Japan's interest rate decision that more information about Japanese wages and Trump policies is needed before the Bank of Japan decides to raise interest rates. Whether Ueda's speech will signal a rate hike in January next year has become a focus of market attention.
Charu Chanana, Chief Investment Strategist at Saxo Markets, believes that Ueda's statement maintains &#34;maximum flexibility&#34; for the January decision, which is not entirely surprising. After the Bank of Japan announced its interest rate decision last week, analysts from Bank of America and Nomura Holdings pushed back their expectations for the Bank of Japan's next rate hike from January next year to March. Analysts believe that if the Bank of Japan decides to raise rates in March or later, the yen exchange rate will face further weakening risks

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Federal Reserve officials predict that the rate cut in 2025 will be smaller and reaffirm the "higher for longer" policy. Despite a rebound in the U.S. stock market over the weekend, it faces dual pressures from a government shutdown and the Federal Reserve's hawkish stance on rate cuts. The Dow Jones Industrial Average has fallen for ten consecutive days, and the NASDAQ and S&P 500 indices have also declined. Investors are concerned about the prospects for a "Christmas rally," and the market may face correction and volatility pressures, especially with rising U.S. Treasury yields

- As the Christmas holiday approaches, investors face challenges from the threat of a U.S. government shutdown and the Federal Reserve's hawkish stance on interest rates.  
- The Dow Jones index ended a ten-day decline, while the Nasdaq and S&P 500 also saw losses, raising concerns about the potential absence of the traditional "Santa Claus rally."  
- Economic data releases this week, including consumer confidence and unemployment claims, will be closely monitored as the market navigates uncertainties regarding future Fed policies and rising U.S. Treasury yields.

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The impact of the Federal Reserve's hawkish interest rate cuts continues, with "higher for longer" returning to investors' focus