4:12pm: Hawkish Fed sparks selloff
The US stock market experienced significant losses on Wednesday, with all major indexes closing sharply lower following the Federal Reserve's interest rate decision.
The Dow Jones plummeted 2.6% to close at 42,327, marking its most substantial decline in recent months. The S&P 500 fell 3% to 5,872, while the tech-heavy Nasdaq dropped 3.6% to finish at 19,393.
The steep sell-off was primarily triggered by Federal Reserve Chair Jerome Powell's cautious remarks during the post-meeting press conference. While the Fed did implement a quarter-point rate cut as widely expected, Powell's guidance suggested a more conservative approach to future monetary policy than investors had hoped.
Ten out of 11 market sectors closed in negative territory, with industrials and communication services experiencing the most significant declines. The market's broad-based selloff reflected widespread investor disappointment with the Fed's economic projections and forward guidance.
3:40pm: Closer to neutral
More reaction to the Fed's comments this afternoon as stocks continued to plunge.
"(T)oday's FOMC meeting leads us to believe that, barring some dramatic unexpected development, the Committee likely will keep rates on hold at its next meeting on January 29," Wells Fargo wrote.
"However, we believe the FOMC will continue to ease policy next year, albeit at a slower pace than over the past few months. Chair Powell seemed to support this expectation when he noted in his presser that the stance of monetary policy is 'significantly closer to neutral' than it was previously, but that policy is 'still meaningfully restrictive.'"
Markets continued to plunge, with the Dow down 2.1%, the S&P 500 off by 2.7% and the Nasdaq taking a 3.6% haircut.
3:15pm: Fed signals a cautious path ahead
The Fed now anticipates only two rate reductions in 2025, a shift from earlier expectations of more aggressive easing. This more hawkish stance caught markets off guard, leading to a swift reaction in currency and bond markets.
The Dow Jones was down 1.3%, the S&P 500 lost 1.6%, and the Nasdaq plunged over 2% in the minutes following the announcement.
“The Fed has raised its GDP growth forecasts for 2024 and 2025, which showcases the U.S. economy’s strength. However, this growth risks fueling inflationary pressures,” said Quasar Elizundia, Research Strategist at Pepperstone.
“Inflation expectations for 2025 and 2026 were revised upward, signaling that the fight against inflation is far from over.”
2:25pm: Markets fall after Fed comments
The Federal Reserve reduced its benchmark interest rate by 25 basis points to a range of 4.25%-4.5% on Wednesday, marking its third consecutive rate cut of 2024. However, the central bank scaled back its forecast for rate cuts next year, projecting two instead of the four anticipated in September.
The decision, made in a split vote, faced opposition from Cleveland Fed President Beth Hammack, who preferred to maintain rates. This was the second dissent since the Fed began its latest easing cycle in September. Among Fed officials, 10 estimated two cuts next year, three anticipated four, and one projected no cuts.
The Fed's statement signaled a potential slowdown in rate reductions, emphasizing that future decisions would depend on incoming data and the economic outlook. Officials also revised their view of the neutral rate, raising it to 3% from 2.9%.
Stock market indices reacted negatively to the announcement, with the Dow Jones falling 0.4%, the S&P 500 dropping 0.5%, and the Nasdaq declining 0.5%.
1:47pm: Newsmakers
A few headlines making news today aside from the Fed decision:
Boeing Co (NYSE:BA, ETR:BCO) (Boeing Co (NYSE:BA, ETR:BCO), Boeing Co (NYSE:BA, ETR:BCO)) has resumed production of all its jets after the conclusion of strikes among thousands of workers in the Pacific Northwest earlier this year.
General Mills Inc (NYSE:GIS, ETR:GRM) (General Mills Inc (NYSE:GIS, ETR:GRM), General Mills Inc (NYSE:GIS, ETR:GRM)) shares headed lower after the food maker cut its profit outlook for 2025 in line with efforts to bring down prices.
Birkenstock Holding PLC (NYSE:BIRK) (Birkenstock Holding PLC (NYSE:BIRK)) shares jumped on Wednesday after the footwear maker unveiled expectation-beating results for the fourth quarter.
And Merck will get exclusive rights to develop, manufacture and sell the oral obesity drug, HS-10535, globally under a $2 billion agreement with China’s Hansoh Pharma.
12:40pm: Nvidia surges
Markets are showing moderate gains ahead of the Federal Reserve's anticipated interest rate decision this afternoon.
The Dow Jones is currently at 43,653, a 0.5% increase on the day. This follows a challenging week where the Dow experienced its longest losing streak since 1978, but today’s uptick suggests a potential rebound as investors await the Fed's announcement.
The S&P 500 has reached 6,062, up by 0.2% and close to record highs. The Nasdaq is trading at 20,138, with a modest rise of 0.1%.
The technology sector continues to drive performance, with notable gains in stocks like Nvidia, which has surged over 4% today after recovering from recent declines.
11:44am: Stocks rise ahead of Fed meeting
Stock markets were comfortably in the green by midday Wednesday.
“Stock markets have found their footing after a mixed morning, but all eyes are on the Fed meeting tonight and the accompanying statement," said IG's Chris Beauchamp.
"The first half of the month has seen US markets struggle, but there is still plenty of space for the usual second half rally to develop, should we avoid any nasty surprises from Powell and co tonight.”
10:52am: Soft landing narrative
The Fed is expected to cut interest rates by 25 basis points today, but the focus is its 2024 outlook amid concerns over potential inflation from Donald Trump's proposed initiatives.
Strong retail sales shouldn't dissuade the Fed from implementing a rate cut, according to Tickmill's Patrick Munnelly.
"Recently, it has been challenging to find any weak demand indicators in the US, and this holds true for the November retail sales report. Advance sales increased by 0.7% month-over-month, surpassing the 0.6% forecast and building on an upwardly adjusted 0.5% increase from the previous month (previously 0.4%)," Munnelly said, noting core metrics showed more modest growth.
"Overall, these figures keep year-over-year changes within recent trends—strong but not compelling enough to catch the Fed's attention."
November's report supports a soft landing narrative, and labour market data indicates improved balance, Munnelly noted.
"The recent persistence of inflation is likely to have a more significant impact on the policy outlook for next year as monetary adjustments approach the 'appropriate' levels that policymakers are targeting. This 'neutral' assumption is expected to continue rising, including projections for the long-term rate."
9.39am: Mixed start on Wall Street
The Dow Jones looked on course to end its worst run since 1978 on Wednesday in a mixed start on Wall Street that saw the S&P 500 and Nasdaq both head lower.
Dow ticked up 0.1% as trading got underway, following nine consecutive daily declines as a wide-spanning post-election rally fizzled out.
Aiding its gain was a 2.4% jump for Nvidia Corp early on, which has largely declined in line with the Dow in recent days.
The Nasdaq and S&P 500 both opened below the mark in the meantime as attention turned to Wednesday’s Federal Reserve interest rate call and any signals on the pace of reductions ahead.
7.22am: Gains seen
Wall Street appeared in a positive mood ahead of Wednesday’s Federal Reserve rate call, placing the Dow Jones on course to end a nine-day losing streak.
Futures had the Dow Jones up 0.3% before the bell, raising hopes that the index could end its worst run since 1978.
Following a broad post-election rally, attention has appeared to turn to big technology firms once again, buoying the S&P 500 and Nasdaq but hampering the 30-company-strong Dow.
Though it does include four of the so-called Magnificent Seven, declines for the likes of UnitedHealth Group Inc (NYSE:UNH, ETR:UNH), Sherwin-Williams Co (NYSE:SHW), Goldman Sachs have weighed.
“One of the concerns with the Dow is just how narrow it is,” CS McKee chief investment officer at CS McKee Brian Allen commented.
Making matters worse has been a downturn in heavyweight Nvidia Corp after recent years of hefty gains look to finally be setting the artificial intelligence giant on a correction course.
Elsewhere, the S&P 500 and Nasdaq were both seen gaining 0.3% ahead of Wednesday’s open, with focus widely on the Fed’s rate call later in the day and expectations for a 25 basis point cut.
“While the Fed is largely anticipated to cut interest rates [...] the focus is on its outlook for the upcoming year, especially in light of Donald Trump's proposed initiatives that could potentially trigger inflation,” Tickmill Group partner Patrick Munnelly said.