US stocks ended with modest losses on Wednesday, retreating from intraday highs after the Federal Reserve (Fed) cut interest rates by 50 basis points, marking its first cut in over four years. While the S&P 500, Dow Jones, and Nasdaq all initially surged after the announcement, they later pared gains and closed in the red.
The Fed cited "greater confidence" that inflation is moving toward its 2% target, and the rate cut aimed to keep the labor market healthy. However, the market response was volatile, with the S&P 500 swinging between gains and losses before ultimately finishing 0.29% lower. The Dow Jones fell 103.08 points (0.25%) to 41,503.10, and the Nasdaq lost 0.31% to close at 17,573.30.
Although the market had been pricing in a 25-basis-point cut earlier in the week, expectations shifted to a 57% chance of a 50-basis-point cut on Wednesday, according to CME’s FedWatch Tool. Investors are now fully expecting at least another 25-basis-point cut at the Fed's November meeting, with a 35% chance of another 50-basis-point reduction.
While small-cap stocks outperformed, with the Russell 2000 briefly surging 2.44%, the KBW Regional Bank Index also saw gains as regional banks benefited from the lower rate environment. Meanwhile, Intuitive Machines surged 38.3% after securing a US$4.8 billion contract from NASA.
Despite the rate cut, Fed Chair Jerome Powell signaled a cautious approach, stating that further cuts would be data-driven and that there was no need for urgent action. Overall, volume on US exchanges was higher than usual, with 11.63 billion shares traded, compared to the 10.82 billion average for the past 20 days.
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