Why the U.S. Dow Index Has Recently Undergone a Correction

As the year-end approached, U.S. stocks set new all-time highs day after day, and over the past few days they have been undergoing a correction.
We can find the reason for the rise of U.S. stocks and their recent correction in the interest rate policy of the U.S. Federal Reserve. First, what happens when interest rates change?
When interest rates rise, companies' interest costs increase, reducing their profits, and borrowing money becomes difficult. As a result, companies face many constraints on generating profits and growing.
Conversely, when interest rates fall, an environment is created in which companies can cut costs and generate profits smoothly. Applying this to the stock market, we can expect that stock prices will rise during periods of rate cuts, and predict that stock prices will fall during periods of rate hikes.

Looking at actual U.S. stock price movements, the Dow index has continued to rise steadily since May 2024, setting a new high for the year on December 4, 2024.
If asked to name the biggest reason the U.S. stock market rose like this, it is rate cuts.
The U.S. raised interest rates to 5.25-5.5% to curb the inflation caused by COVID-19. Afterward, judging that inflation was normalizing, it began cutting rates in September. Investors expected rate cuts to continue through next year, and accordingly the U.S. stock market kept trending upward.
However, starting from December 5, 2024, the U.S. stock market has been falling for the past few days. Why? A new variable emerged.
As Federal Reserve Chair Powell announced that the Fed would not rush to cut rates, expectations for rate cuts were dashed. As a result, stock prices turned downward and have continued to show a correction.

In this way, interest rates have a major impact on the stock market. However, just because you understand this principle does not mean you should assert the direction of stock prices with certainty.
That's because no one knows what Powell might say next.