U.S. Stocks Close Moderately Lower After Fed Slashes Interest Rates

Stocks saw considerable volatility late in the trading session on Wednesday following the Federal Reserve’s announcement of its decision to lower interest rates. The major averages showed wild swings back and forth across the unchanged line before eventually closing in negative territory.

The Dow and the S&P 500 reached new record intraday highs immediately following the Fed announcement but finished the day in the red.

The Dow fell 103.08 points or 0.3 percent to 41,503.10, the S&P 500 slipped 16.32 points or 0.3 percent to 5,618.26 and the Nasdaq dipped 54.76 points or 0.3 percent to 17,573.30.

The late-day volatility on Wall Street came after the Fed decided to lower interest rates for the first time in over four years, aggressively slashing rates by half a percentage point.

With the Fed saying officials have gained greater confidence inflation is moving sustainably toward its 2 percent target, the central bank lowered the target range for the federal funds rate by 50 basis points to 4.75 to 5.00 percent.

The Fed was almost universally expected to cut rates for the first time since March 2020, but there was some debate over whether it would lower rates by 25 or 50 basis points.

The decision to opt for the larger rate cut came as the Fed said the risks to achieving its employment and inflation goals are roughly in balance.

The economic projections provided by Fed officials at the meeting suggested the central bank will cut rates by another 50 basis points by the end of the year.

Fed officials also expect to continue lowering rates next year, with the projections indicating rates will be lower by another full percentage point by the end of 2025.

“The Fed front-loaded this rate cutting cycle with a jumbo 50 bps rate cut and signaled in their statement that they are focused squarely on the labor market, saying they are ‘strongly committed to supporting maximum employment,'” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance.

“We believe that the market will undergo some volatility as we get closer to the election,” he added. “However, lowering interest rates now – and telegraphing another 50 bps in cuts by the end of this year and a total of 150 bps more by the end of next year – should allow the market to hit all-time highs again by the end of this year, and more gains for next year.”

In U.S. economic news, a report released by the Commerce Department showed a substantial rebound by new residential construction in the U.S. in the month of August.

Sector News

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster close by the broader markets.

However, gold stocks saw significant weakness as the price of the precious metal came under pressure in electronic trading, dragging the NYSE Arca Gold Bugs Index down by 1.4 percent.

A notable decrease by the price of crude oil also weighed on oil service stocks, as reflected by the 1.3 percent loss posted by the Philadelphia Oil Service Index.

Semiconductor, software and networking stocks also moved to the downside on the day, contributing to the dip by the tech-heavy Nasdaq.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan’s Nikkei 225 Index and China’s Shanghai Composite Index both climbed by 0.5 percent.

Meanwhile, most European stocks moved to the downside on the day. The U.K.’s FTSE 100 slid by 0.7 percent and the French CAC 40 Index fell by 0.6 percent, while the German DAX Index edged down by 0.1 percent.

In the bond market, treasuries fluctuated following the Fed announcement before closing lower. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 4.3 basis points to 3.685 percent.

Looking Ahead

Trading on Thursday may continue to be impacted by reaction to the Fed decision, while traders are also likely to keep an eye on reports on jobless claims, existing home sales and Philadelphia-area manufacturing activity.