U.S. stocks faced a noticeable downturn on Wednesday in response to the U.S. Federal Reserve’s decision to keep key interest rates steady, aligning with widespread expectations. Alongside this decision, the Fed revised its economic projections upward while sounding the alarm about the ongoing battle against inflation.
All three major U.S. stock indices retreated following the announcement, with interest rate-sensitive megacap stocks like Microsoft Corp (NASDAQ: MSFT), Apple Inc (NASDAQ: AAPL), and Nvidia Corp (NASDAQ: NVDA) leading the Nasdaq’s decline.
The Fed’s announcement was accompanied by its Summary Economic Projections (SEP) and the dot plot, indicating an anticipated additional 25 basis point rate hike later this year, with a peak in the 5.50%-5.75% range. The SEP projections also foresee a 50 basis point rate cut in the following year.
Ryan Detrick, Chief Market Strategist at Carson Group in Omaha, Nebraska, commented, “It’s your standard Fed day volatility. Yet it wasn’t really a curve-ball event because markets took things in stride.” He added, “This day has had a bull’s eye on it all month, and now we can move past it.”
According to the updated projections, the Fed funds target rate is expected to inch down to 5.1% by the end of next year and further to 3.9% by the end of 2025. Although core inflation has cooled since the Fed began tightening in March, it has been a slow and uneven descent toward the central bank’s 2% target.
The SEP forecasts indicate that inflation will decrease to 3.3% by the year-end and approach the central bank’s average annual 2% target. During a subsequent press conference, Fed Chairman Jerome Powell tempered the rosier economic projections with a cautionary note that inflation still has a long way to go before reaching that target.
“The Fed didn’t really rock the boat,” Detrick stated. “They acknowledged the strength in the economy, which also lowered the number of cuts that were expected next year, implying higher for longer is likely the path they will continue to take.”
On the market front, the Dow Jones Industrial Average fell by 76.85 points, or 0.22%, to 34,440.88, the S&P 500 recorded a loss of 41.75 points, or 0.94%, at 4,402.2, and the Nasdaq Composite saw a drop of 209.06 points, or 1.53%, to 13,469.13.
Among the 11 major sectors of the S&P 500, communication services and technology sectors, both sensitive to interest rates, suffered the most significant percentage losses.
Klaviyo, a marketing automation company, experienced a 9.2% surge during its debut on the New York Stock Exchange. This marks the third recent initial public offering following Arm Holdings (NASDAQ: ARM) and Maplebear Inc.
Ryan Detrick commented on this development, stating, “It shows confidence is coming back to even have the large IPOs. It’s a sign that things are getting closer to normal, which is necessary at this stage of the business cycle.” In contrast, Maplebear lost 10.7%, while Arm Holdings, another recent debut, was down 4.1%.
Pinterest (NYSE: PINS) gained 3.1% after the image-sharing firm announced a share buyback program of up to $1 billion. Coty (NYSE: COTY) also saw a 4.4% increase after the CoverGirl parent company raised its annual core sales forecast.
On the New York Stock Exchange, declining issues outnumbered advancing ones with a ratio of 1.46-to-1, and on Nasdaq, decliners had a ratio of 1.90-to-1. The S&P 500 recorded 14 new 52-week highs and 6 new lows, while the Nasdaq Composite registered 39 new highs and 246 new lows.
Volume on U.S. exchanges amounted to 9.73 billion shares, slightly lower than the 10.07 billion average for the full session over the last 20 trading days.
