Equities Close Slightly Lower, Choppy Trading Follows Fed Rate Cut

By Chuck Mikolajczak

NEW YORK – U.S. stocks closed with modest losses on Wednesday, retreating from their intraday highs after the Federal Reserve implemented a 50-basis point interest rate cut, marking its first reduction in over four years.

Trading was inconsistent throughout the day. Prior to the Fed’s announcement, the market fluctuated between slight gains and losses. The benchmark index initially rose by as much as 1% following the announcement, but those gains were trimmed, ultimately leading to a lower close. The Dow and S&P 500 reached intraday highs before pulling back.

The decision to cut rates by half a percentage point stemmed from the Fed’s “greater confidence” that inflation is heading toward its 2% target, as the central bank now aims to maintain a healthy labor market.

“The Fed ended the pause with a bang. It’s a strong signal that they cut by 50 basis points and expect another 50 basis points of cuts this year,” stated Brian Jacobsen, chief economist at Annex Wealth Management. He added, “The Fed is projecting that by front loading the cuts, they can achieve a stable landing with the unemployment rate at 4.4% and inflation quickly returning to target.”

Market expectations for the rate cut had been volatile leading up to the announcement, shifting from about a 65% chance of a 25-basis point cut last week to a 57% chance for the larger cut earlier on Wednesday.

The Dow fell 103.08 points, or 0.25%, to 41,503.10, while the S&P 500 declined 16.32 points, or 0.29%, to 5,618.26. The Nasdaq dropped by 54.76 points, or 0.31%, to 17,573.30.

Following the announcement, markets anticipated at least a 25-basis point cut at the Fed’s November meeting, with a roughly 35% likelihood of an additional 50-basis point cut.

Steve Sosnick, chief market strategist at Interactive Brokers, commented, “It’s amazing to me how even when markets get what they seemingly want, they immediately want more. It’s important to note that stocks are not rocketing ahead (at least not yet) after getting what they wanted. After seven straight up days, a lot of good news was priced in.”

Interest rates had been elevated since July 2023, when the Fed last increased rates to between 5.25% and 5.50% in an effort to combat inflation.

After the rate cut announcement, Fed Chair Jerome Powell indicated that the central bank’s forecast for future interest rates did not necessitate urgent action.

Small-cap stocks, typically more sensitive to changes in interest rates, fared better, with the sector outperforming large-cap stocks—rising as much as 2.44% before settling up 0.04% for the day. Meanwhile, regional banks, which faced challenges from higher interest rates, also saw gains, with the KBW Regional Bank Index climbing as much as 3.53% before closing up 0.46%.

This year has seen a rally in the markets, with all three major indexes reaching record highs on optimism surrounding lower interest rates as inflation shows signs of easing and the job market exhibits gradual cooling trends.

Intuitive Machines experienced a significant surge, gaining 38.3% after securing a $4.8 billion navigation services contract with NASA.

Declining issues outnumbered advancers by a ratio of 1.14-to-1 on the NYSE and 1.36-to-1 on the Nasdaq.

The S&P 500 recorded 43 new 52-week highs and no new lows, while the Nasdaq Composite noted 165 new highs against 69 new lows.

Trading volume on U.S. exchanges reached 11.63 billion shares, exceeding the average of 10.82 billion over the past 20 trading days.